<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1998
REGISTRATION NO. 333-60355
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
(Exact name of co-registrant as specified in its charter)
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<S> <C>
MARYLAND 84-1275621
DELAWARE 84-1259577
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
1873 SOUTH BELLAIRE STREET, 17TH FLOOR PETER KOMPANIEZ
DENVER, COLORADO 80222 PRESIDENT
(303) 757-8101 1873 SOUTH BELLAIRE STREET, 17TH FLOOR
DENVER, COLORADO 80222
(303) 757-8101
FAX: (303) 753-9538
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of co-registrants' principal number,
executive offices) including area code, of agent for service)
</TABLE>
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Copy to:
JONATHAN L. FRIEDMAN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
FAX: (213) 687-5600
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Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and if there is compliance
with General Instruction G, check the following box. [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Preferred Stock, par value $.01
per share(3)....................
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Class A Common Stock, par value
$.01 per share(3)...............
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Partnership Preferred Units(4).... $200,000,000 $200,000,000
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Partnership Common Units(4)....... $200,000,000 $200,000,000
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Total.................... $1,000,000,000 (1) $1,000,000,000 $295,000
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</TABLE>
(1) To be determined, from time to time, by the Registrants in connection with
the issuance of the securities registered hereunder.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
(3) To be issued by Apartment Investment and Management Company ("AIMCO"). The
amount of such securities registered hereby includes (i) shares of Preferred
Stock and Class A Common Stock of AIMCO issuable in exchange for Partnership
Preferred Units or Partnership Common Units of AIMCO Properties, L.P.
tendered for redemption pursuant to the agreement of limited partnership of
AIMCO Properties, L.P., plus such additional number of shares of Preferred
Stock and Class A Common Stock as may be issuable pursuant to the
antidilution adjustment provisions of such agreement and (ii) shares of
Class A Common Stock of AIMCO issuable upon conversion of shares of
Preferred Stock of AIMCO. In no event will the aggregate maximum offering
price of all securities registered under this Registration Statement by
AIMCO exceed $600,000,000.
(4) To be issued by AIMCO Properties, L.P.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This filing includes (i) a prospectus supplement relating to an exchange
offer for units of limited partnership interest in Casa Del Mar Associates
Limited Partnership, (ii) a base prospectus to be used for the offering and
issuance of securities in connection with acquisitions of businesses,
properties, securities or other assets, and (iii) 44 additional prospectus
supplements relating to exchange offers for units of limited partnership
interest in the following limited partnerships:
Baywood Partners, Ltd.
Brampton Associates Partnership
Buccaneer Trace Limited Partnership
Burgundy Court Associates, L.P.
Calmark/Fort Collins, Ltd.
Calmark Heritage Park II Ltd.
Catawba Club Associates, L.P.
Cedar Tree Investors Limited Partnership
Chapel Hill, Limited
Chestnut Hill Associates Limited Partnership
Coastal Commons Limited Partnership
DFW Apartment Investors Limited Partnership
DFW Residential Investors Limited Partnership
Four Quarters Habitat Apartment Associates, Ltd.
Georgetown of Columbus Associates, L.P.
La Colina Partners, Ltd.
Lake Eden Associates, L.P.
Landmark Associates, Ltd.
Minneapolis Associates II Limited Partnership
Northbrook Apartments, Ltd.
Olde Mill Investors Limited Partnership
Orchard Park Apartments Limited Partnership
Park Towne Place Associates Limited Partnership
Quail Run Associates, L.P.
Ravenworth Associates Limited Partnership
Rivercreek Apartments Limited Partnership
Rivercrest Apartments, Limited
Salem Arms of Augusta Limited Partnership
Shaker Square, L.P.
Shannon Manor Apartments, a Limited Partnership
Sharon Woods, L.P.
Snowden Village Associates, L.P.
Sturbrook Investors, Ltd.
Sycamore Creek Associates, L.P.
Texas Residential Investors Limited Partnership
Thurber Manor Associates, Limited Partnership
Villa Nova, Limited Partnership
Walker Springs, Limited
Wingfield Investors Limited Partnership
Winrock -- Houston Limited Partnership
Winthrop Apartment Investors Limited Partnership
Winthrop Texas Investors Limited Partnership
Woodmere Associates, L.P.
Yorktown Towers Associates
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
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<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Partnership................................ S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Casa Del Mar
Associates Limited Partnership............. S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-36
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
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PAGE
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<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-41
General...................................... S-41
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-58
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
</TABLE>
i
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PAGE
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Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-72
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-75
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
Distributions and Transfers of Units......... S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-78
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-79
LEGAL MATTERS.................................. S-79
EXPERTS........................................ S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Casa Del Mar Associates Limited Partnership. For each unit that you tender,
you may choose to receive of our Tax-Deferral %
Partnership Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred
to as "Common OP Units"), or $ in cash (subject, in each case to
adjustment for any distributions paid to you during the offer period). If
you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: In June, 1997, we acquired the managing general partner of your partnership
(the "general partner"). In 1997, we also acquired a 95% non-voting
interest in the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 7
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 8
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership did not pay any distributions on your partnership's units
in 1998. We will pay fixed quarterly distributions of $ per
unit on the Tax-Deferral % Preferred OP Units before any distributions
are paid to holders of Tax-Deferral Common OP Units. We pay quarterly
distributions on the Tax-Deferral Common OP Units based on our funds from
operations for that quarter. For the six months ended June 30, 1998, we
paid distributions of $1.125 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL
S-3
<PAGE> 9
TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX
CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED
TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX
MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS
AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated. In August, 1997, we offered to acquire all
units of your partnership at a price of $2,648 in cash per unit. In June,
1998, we offered to acquire all units of your partnership at price of
$21,668 in cash per unit.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents the
closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
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Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
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Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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<PAGE> 12
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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<PAGE> 14
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
S-9
<PAGE> 15
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
In June, 1997, we acquired the general partner of your partnership. In
1997, we also acquired a 95% non-voting interest in the company that manages the
property owned by your partnership. We conducted two prior tender offers for
units of your partnership. In August, 1997 we acquired a 0.7576% limited
partnership interest in your partnership through the first tender offer. In June
1998, we acquired an additional 0.3788% limited partnership interest in your
partnership through the second tender offer. We currently own a 1.1364% limited
partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership has required funding from its partners. Continuation of its
operations is dependent on additional funding from partners or from other
sources. Your partnership faces maturity
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or balloon payment dates on its mortgage loans and must either obtain
refinancing or sell its property. If your partnership were to continue
operating as presently structured, it could be forced to borrow on terms
that could result in net losses from operations. In addition, continuation
of your partnership without the offer would deny you and your partners the
benefits that your general partner expects to result from the offer. For
example, a partner of your partnership would have no opportunity for
liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax Deferral % Preferred OP
Units rank equal to six other outstanding classes of Partnership
Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
S-13
<PAGE> 19
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
S-14
<PAGE> 20
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY
S-15
<PAGE> 21
BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR
TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED
TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN
THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO
STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND
OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO
YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Forecasted net operating income (January 1, 1998 to December
31, 1998)................................................. $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents(1)..........................
Plus: Other partnership assets, net of security
deposits(1)...............................................
Less: Mortgage debt, including accrued interest(1)..........
Less: Notes payable, including accrued interest(1)..........
Less: Accounts payable and accrued expenses(1)..............
Less: Other liabilities(1)..................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
- ---------------
(1) As of June 30, 1998
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
S-16
<PAGE> 22
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ $2,648 through $21,668
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our consideration from a financial point of view.
The full text of the opinion, which contains a description of the assumptions
and qualifications made, matters considered and limitations on the review and
analysis, is set forth in Appendix A-1 and should be read in its entirety. We
imposed no conditions or limitations on the scope of Stanger's investigation or
with respect to the methods and procedures to be followed in arriving at the
fairness opinion. We have agreed to indemnify Stanger against certain
liabilities arising out of its engagement to render the fairness opinion. Based
on its analysis, and subject to the assumptions, limitations and qualifications
cited in its opinion, Stanger concluded that our offer consideration is fair to
you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
S-17
<PAGE> 23
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and a 95% non-voting interest in
the manager of your partnership's property. The general partner of your
partnership receives a fee of $2,083 per month from your partnership and may
receive reimbursement for expenses generated in its capacity as general partner.
The property manager received management fees of $427,385 in 1996, $437,571 in
1997 and $215,708 for the first six months of 1998.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Casa Del Mar Associates Limited
Partnership is a Florida limited partnership which was formed on August 26, 1998
for the purpose of owning and operating an assisted living apartment property
located in Boca Raton, Florida, known as "Casa Del Mar." In October, 1988, it
completed a private placement of units that raised net proceeds of approximately
$7,400,000. Casa Del Mar consists of 214 apartment units. Your partnership has
no employees.
Property Management. Since July 12, 1996, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of
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<PAGE> 24
equipment and supplies, and the selection and engagement of all vendors,
suppliers and independent contractors. The property manager is affiliated with
us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2038, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership agreement allows your partnership to
incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $13,800,862, payable to Mellon Bank MD, which bears interest at
the rate of 8.12%. The mortgage debt is due in August 2005. In addition, your
partnership had borrowed $1,714,490 (including accrued interest) from an
unrelated party on an unsecured basis as of June 30, 1998. The majority of these
borrowings bear interest at 9% and are due July 2006. Your partnership agreement
also allows your general partner to lend funds to your partnership. As of June
30, 1998, your general partner had outstanding loans (including accrued and
unpaid interest) of $5,906,796 to your partnership, which generally bear
interest at a rate of 9% and mature in July 2006.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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<PAGE> 25
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'s
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 26
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'s
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 27
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 28
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 29
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 30
SUMMARY FINANCIAL INFORMATION OF CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
The summary financial information of Casa Del Mar Associates Limited
Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The
summary financial information for Casa Del Mar Associates Limited Partnership
for the years ended December 31, 1997 and 1996 is based on audited financial
statements. This information should be read in conjunction with such financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Your Partnership"
included herein. Certain amounts in the December 31, 1996 summary financial
information have been reclassified to conform to the other periods presented
here. See "Index to Financial Statements."
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
------------------------- -------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.............................................. $ 3,637,897 $ 3,702,572 $ 7,335,827 $ 6,963,188
Net loss.................................................... (242,115) (89,887) (352,461) (398,693)
BALANCE SHEET DATA:
Real estate, net of accumulated depreciation................ $16,635,564 $16,604,478 $16,793,217 $16,780,268
Total assets................................................ 17,851,507 17,628,627 17,656,244 17,609,188
Mortgage notes payable...................................... 13,800,862 14,019,912 13,910,041 14,120,604
Notes payable and accrued interest -- related parties....... 5,906,796 5,029,089 5,259,171 5,162,446
Notes payable and accrued interest -- other................. 1,714,490 1,594,875 1,652,243 1,541,382
Partners' Deficit........................................... (4,777,639) (4,272,950) (4,535,524) (4,387,087)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $1.125 $1.85 $0 $0
</TABLE>
S-25
<PAGE> 31
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 32
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights, title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 33
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Based on anticipated annualized distributions of
$ with respect to the Preferred OP Units, current annualized distributions
with respect to the Common OP Units of $2.25 and the estimated 1998
distributions of $0 with respect to your units, distributions with respect to
the Preferred OP Units and Common OP Units to be received in the Offer are
expected to be greater, immediately following the offer, than the distributions
with respect to your units. See "Comparison of Ownership of Your Units and AIMCO
OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that
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AIMCO's access to the public markets may prove challenging in light of the
volatility in both the equity and capital markets for REITs. Moody's assigned a
"ba3" rating to the Class I Preferred Stock proposed to be issued by AIMCO, and
confirmed its previous ratings related to AIMCO's preferred stock and debt in
its shelf registration statement. Moody's indicated that its rating action
continues to reflect AIMCO's increasing leveraged profile, including high levels
of secured debt and preferred stock, limited financial flexibility and
integration risks resulting from the merger with Insignia. Moody's also noted
AIMCO's high level of encumbered properties and material investments in loans to
highly leveraged partnerships in which AIMCO owns a general partnership
interest. At the same time, Moody's confirmed its existing rating on AIMCO's
existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On June 3, 1997, the Company acquired NHP Partners, Inc., a Delaware
corporation ("NHP Partners"), and NHP Partners Two Limited Partnership, a
Delaware limited partnership ("Partners Two"), each formerly affiliated with NHP
Incorporated, a Delaware corporation ("NHP"). As a result of this acquisition,
the general partner of your partnership became a subsidiary of AIMCO and an
affiliate of the AIMCO Operating Partnership. Previously, on May 5, 1997, AIMCO
acquired 51.3% of the outstanding common stock of NHP, which manages the
property owned by your partnership. On December 8, 1997, AIMCO acquired the
remaining 48.7% of the outstanding common stock of NHP and thus owns 100% of the
outstanding common stock of NHP.
We conducted two prior tender offers for units of your partnership. In
August, 1997 we acquired a 0.7576% limited partnership interest in your
partnership through the first tender offer. In June 1998, we acquired an
additional 0.3788% limited partnership interest in your partnership through the
second tender offer. We currently own a 1.1364% limited partnership interest in
your partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired NHP Partners, Partners Two and NHP was
that AIMCO expected to make offers to acquire limited partnership interests of
some of the limited partnerships formerly controlled or managed by NHP (the "NHP
Partnerships"). Such offers would provide liquidity for the limited partners of
the NHP Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain NHP
Partnerships which would provide a larger asset and capital base and increased
diversification.
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The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership has required funding from its partners. Continuation of
its operations is dependent on additional funding from partners or from other
sources. Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership
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interest in the property owned by your partnership while providing you and other
investors with an opportunity to retain or liquidate your investment or to
invest in the AIMCO Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax Deferral % Preferred OP Units rank equal to five other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Your partnership has not paid any distributions on your units
since the inception of your partnership. Historically, the quarterly
distributions paid on the Common OP Units have been equivalent to the
dividends paid on AIMCO's Class A Common Stock. We expect this to
continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998 IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
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All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
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If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
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VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998, (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P
500 Index, the Morgan Stanley REIT Index, or the price of the 10-year
Treasury Bond or the price of the 30-year Treasury Bond, in each case from
, 1998, (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the sole judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental agency,
or by any other person, before any governmental authority, court or
regulatory or administrative
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agency, authority or tribunal, which (i) challenges or seeks to challenge
the acquisition by the AIMCO Operating Partnership of the units, restrains,
prohibits or delays the making or consummation of the offer, prohibits the
performance of any of the contracts or other arrangements entered into by
the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating
Partnership) seeks to obtain any material amount of damages as a result of
the transactions contemplated by the offer, (ii) seeks to make the purchase
of, or payment for, some or all of the units pursuant to the offer illegal
or results in a delay in the ability of the AIMCO Operating Partnership to
accept for payment or pay for some or all of the units, (iii) seeks to
prohibit or limit the ownership or operation by AIMCO or any of its
affiliates of the entity serving as the general partner of your partnership
or to remove such entity as the general partner of your partnership, or
seeks to impose any material limitation on the ability of the AIMCO
Operating Partnership or any of its affiliates to conduct your
partnership's business or own such assets, (iv) seeks to impose material
limitations on the ability of the AIMCO Operating Partnership or any of its
affiliates to acquire or hold or to exercise full rights of ownership of
the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to
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acquire beneficial ownership of more than four percent of the units, or
shall have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than four percent of the
units, or (ii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect to a
merger, consolidation, purchase or lease of assets, debt refinancing or
other business combination with or involving your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also
indirectly owns a 95% non-voting interest in the company that manages your
partnership's property. In the event that the AIMCO Operating Partnership
acquires a substantial number of units pursuant to the offer, removal of the
property manager may become more difficult or impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking
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of any such action, there can be no assurance that any such additional approval
or action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to your partnership's business, or that
certain parts of your partnership's business might not have to be disposed of or
other substantial conditions complied with in order to obtain such approval or
action, any of which could cause the AIMCO Operating Partnership to elect to
terminate the offer without purchasing units hereunder. The AIMCO Operating
Partnership's obligation to purchase and pay for units is subject to certain
conditions, including conditions related to the legal matters discussed in this
section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
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RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any
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Parity Units shall be declared ratably in proportion to the respective amounts
of distributions accumulated, accrued and unpaid on the Preferred OP Units and
accumulated, accrued and unpaid on such Parity Units. Except as set forth in the
preceding sentence, unless distributions on the Preferred OP Units equal to the
full amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations
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shall have been made in full to the holders of Preferred OP Units and any Parity
Units to enable them to receive their Liquidation Preference, any Junior Units
shall be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Preferred OP Units and any Parity Units
shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 52
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 53
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 54
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 55
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 57
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's forecasted annual net operating income of
$ for the period from January 1, 1998 to December 31, 1998 to
derive a gross property value of $ . We selected a
capitalization rate of %, based on our experience in valuing similar
properties. The lower the capitalization rate applied to a property's
income, the higher its value. We considered local market sales
information for comparable properties, estimated actual capitalization
rates (net operating income less capital reserves divided by sales price)
and then evaluated your partnership's property in light of its relative
competitive position, taking into account property location, occupancy
rate, overall property condition and other relevant factors. The AIMCO
Operating Partnership believes that arms-length purchasers would base
their purchase offers on capitalization rates comparable to those used by
us, however there is no single correct capitalization rate and others
might use different rates. We subtracted from this gross valuation
capital expenditures of $ to derive a gross property value of
$ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value, as of June 30, 1998, of the
non-real estate assets of your partnership, and deducting the liabilities
of your partnership, including mortgage debt and debt owed by your
partnership to its general partner or its affiliates after consideration
of any applicable subordination provisions affecting payment of such
debt. We deducted from this value any taxes and certain other costs
including required capital expenditures and deferred maintenance to
derive a net equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Forecasted net operating income (January 1, 1998 to December
31, 1998)................................................. $
Capitalization rate.........................................
Gross valuation of your partnership property................
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents(1)..........................
Plus: Other partnership assets, net of security
deposits(1)...............................................
Less: Mortgage debt, including accrued interest(1)..........
Less: Notes payable, including accrued interest(1)..........
Less: Accounts payable and accrued expenses(1)..............
Less: Other liabilities(1)..................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- ---------------
(1) As of June 30, 1998
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Based on anticipated annualized distributions of $ with respect
to the Preferred OP Units, current annualized distributions with respect to
the Common OP Units of $2.25 and the estimated 1998 distributions of $0
with respect to your units, distributions with respect to the Preferred OP
Units and Common OP Units to be received in the Offer are expected to be
greater, immediately following the offer, than the distributions with
respect to your units. See "Comparison of Ownership of Your Units and AIMCO
OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment
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properties although there are other ways to value real estate. A liquidation in
the future might generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ $2,648 through $21,668
Estimated Liquidation Proceeds............................ $
</TABLE>
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<PAGE> 62
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. However,
we have made two prior tender offers for units. In the first offer, made in
August, 1997, we offered to acquire all units of your partnership at a price of
$2,648 per unit in cash. In June, 1998, we offered to acquire all units of your
partnership at a price of $21,668 per unit in cash.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion --
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<PAGE> 63
Assumptions, Limitations and Qualifications." We have agreed to indemnify
Stanger against certain liabilities arising out of Stanger's engagement to
prepare and deliver the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property manage-
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ment personnel were interviewed concerning your partnership's property and
local market conditions. Stanger also reviewed and relied upon information
provided by your partnership and AIMCO, including, but not limited to, financial
schedules of historical and current rental rates, occupancies, income, expenses,
reserve requirements, cash flow and related financial information; property
descriptive information including unit mix; and information relating to the
condition of the property, including any deferred maintenance, capital budgets,
status of ongoing or newly planned property additions, reconfigurations,
improvements and other factors affecting the physical condition of the property
improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between the general partner, special limited partner and limited partners of
your partnership, the terms and conditions of any debt encumbering the
partnership's property, and the transaction costs and fees associated with a
sale of the property. Stanger also relied upon the assurance of your
partnership, AIMCO, and the management of the partnership's property that any
financial statements, budgets, pro forma statements, projections, capital
expenditure estimates, debt, value estimates and other information contained in
this Prospectus Supplement or provided or communicated to Stanger were
reasonably prepared and adjusted on bases consistent with actual historical
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experience, are consistent with the terms of your partnership's agreement
of limited partnership, and reflect the best currently available estimates and
good faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Florida law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Casa Del Mar Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2038. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to develop, market, The purpose of the AIMCO Operating Partnership is to
lease, operate, finance, and sell the partnership's conduct any business that may be lawfully conducted by
property. Subject to restrictions contained in your a limited partnership organized pursuant to the
partnership agreement of limited partnership, your Delaware Revised Uniform Limited Partnership Act (as
partnership may perform all acts necessary or amended from time to time, or any successor to such
appropriate in connection therewith and reasonably statute) (the "Delaware Limited Partnership Act"),
related thereto, including borrowing money, creating provided that such business is to be conducted in a
liens and investing funds in financial instruments. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to admit two special limited partners specified in your partnership interests in the AIMCO Operating
partnership's agreement of limited partnership, issue Partnership for any partnership purpose from time to
additional limited partnership interests in your time to the limited partners and to other persons, and
partnership and may admit additional limited partners to admit such other persons as additional limited
by selling not less than 86 1/2 units nor more than 100 partners, on terms and conditions and for such capital
units for cash and notes to selected persons who contributions as may be established by the general
fulfill the requirements set forth in your partner in its sole discretion. The net capital
partnership's agreement of limited partnership. The contribution need not be equal for all OP Unitholders.
capital contribution need not be equal for all limited No action or consent by the OP Unitholders is required
partners and no action or consent is required in in connection with the admission of any additional OP
connection with the admission of any additional limited Unitholder. See "Description of OP Units -- Management
partners. by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership may contract The AIMCO Operating Partnership may lend or contribute
with affiliated persons, provided that such contracts funds or other assets to its subsidiaries or other
are on commercially reasonable terms in accordance with persons in which it has an equity investment, and such
industry custom and as if between unrelated parties persons may borrow funds from the AIMCO Operating
negotiating at arms' length. However, the general Partnership, on terms and conditions established in the
partner may not grant to itself or any affiliate an sole and absolute discretion of the general partner. To
exclusive listing for the sale of your partnership's the extent consistent with the business purpose of the
assets nor act for compensation as a finance broker on AIMCO Operating Partnership and the permitted
behalf of your partnership. The general partner and its activities of the general partner, the AIMCO Operating
affiliates may lend money to your partnership which Partnership may transfer assets to joint ventures,
will be repaid with interest at the then prevailing limited liability companies, partnerships,
rate for loans of a similar nature. corporations, business trusts or other business
entities in which it is or thereby becomes a
participant upon such terms and subject to such
conditions consistent with the AIMCO Operating Part-
nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money and, if security is required therefore, restrictions on borrowings, and the general partner has
to mortgage or subject any partnership asset or full power and authority to borrow money on behalf of
investment to any security device so long as such acts the AIMCO Operating Partnership. The AIMCO Operating
are do not violate the terms of any outstanding debt. Partnership has credit agreements that restrict, among
Your partnership may not incur any indebtedness wherein other things, its ability to incur indebtedness. See
the lender will have or acquire at any time, as a "Risk Factors -- Risks of Significant Indebtedness" in
result of making of the loan, any direct or indirect the accompanying Prospectus.
interest in the profits, capital or property of your
partnership other than as a secured creditor.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners or their designated with a statement of the purpose of such demand and at
representative to examine and copy, at such limited such OP Unitholder's own expense, to obtain a current
partners' expense, the books of account, all list of the name and last known business, residence or
correspondence papers and other documents at the mailing address of the general partner and each other
offices of your partnership at all reasonable times. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has control All management powers over the business and affairs of
over the day-to-day management of your partnership and the AIMCO Operating Partnership are vested in AIMCO-GP,
has the duty and responsibility of providing continuing Inc., which is the general partner. No OP Unitholder
administrative and executive support, advice, has any right to participate in or exercise control or
consultation, analysis and supervision with respect to management power over the business and affairs of the
the functions of your partnership as owner of the AIMCO Operating Partnership. The OP Unitholders have
partnership's property. Subject to the limitations the right to vote on certain matters described under
under applicable law and the terms and provisions of "Comparison of Ownership of Your Units and AIMCO OP
your partnership's agreement of limited partnership, Units -- Voting Rights" below. The general partner may
the general partner has the power to do all management not be removed by the OP Unitholders with or without
acts by its own signature and has the right, authority, cause.
power and duty to carry out the purposes and business
of your partnership. The limited partners have no right In addition to the powers granted a general partner of
to take part in the control of your partnership a limited partnership under applicable law or that are
business or to sign for or to bind your partnership. granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner and its affiliates are the AIMCO Operating Partnership Agreement, the general
not liable to your partnership or to any partner for partner is not liable to the AIMCO Operating
any loss suffered by your partnership which arises out Partnership for losses sustained, liabilities incurred
of any action or inaction of the general partner or its or benefits not derived as a result of errors in
affiliates if the general partner or its affiliates, in judgment or mistakes of fact or law of any act or
good faith, determined that such course of conduct was omission if the general partner acted in good faith.
in the best interest of your partnership and such The AIMCO Operating Partnership Agreement provides for
course of conduct did not constitute negligence or indemnification of AIMCO, or any director or officer of
misconduct of the general partner or its affiliates. AIMCO (in its capacity as the previous general partner
The general partner of your partnership and its of the AIMCO Operating Partnership), the general
affiliates are entitled to indemnification from your partner, any officer or director of general partner or
partnership against any expense, liability, judgement, the AIMCO Operating Partnership and such other persons
loss and amounts paid in settlement of any claims as the general partner may designate from and against
sustained by them in connection with your partner- all losses, claims, damages, liabilities, joint or
ship, provided that the same were not the result of several, expenses (including legal fees), fines,
negligence or misconduct on the part of the general settlements and other amounts incurred in connection
partner or its affiliates. with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner upon a vote of the limited partners owning at affairs of the AIMCO Operating Partnership. The general
least 80% of the outstanding Units. A vote of a partner may not be removed as general partner of the
majority of the outstanding units is required to elect AIMCO Operating Partnership by the OP Unitholders with
a successor general partner. The general partner may or without cause. Under the AIMCO Operating Partnership
not voluntarily transfer its general partner interest. Agreement, the general partner may, in its sole
A limited partner may not transfer its interests discretion, prevent a transferee of an OP Unit from
without first offering the general partner the option becoming a substituted limited partner pursuant to the
to purchase such interests on the terms of the offer AIMCO Operating Partnership Agreement. The general
received by the limited partner. partner may exercise this right of approval to deter,
delay or hamper attempts by persons to acquire a
controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner if such amendment is in the AIMCO Operating Partnership Agreement, whereby
solely for the purpose of clarification and does not the general partner may, without the consent of the OP
change the substance thereof, is for the purpose of Unitholders, amend the AIMCO Operating Partnership
substituting limited partners or is required by law. Agreement, amendments to the AIMCO Operating
All other amendments must be approved by the all Partnership Agreement require the consent of the
limited partners. holders of a majority of the outstanding Common OP
Units, excluding AIMCO and certain other limited
exclusions (a "Majority in Interest"). Amendments to
the AIMCO Operating Partnership Agreement may be
proposed by the general partner or by holders of a
Majority in Interest. Following such proposal, the
general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives $2,083 per month, payable on the 10th of each capacity as general partner of the AIMCO Operating
month, as compensation for the management of your Partnership. In addition, the AIMCO Operating Part-
partnership. Moreover, upon the occurrence of certain nership is responsible for all expenses incurred
events, the general partner or certain affiliates may relating to the AIMCO Operating Partnership's ownership
be entitled to compensation for services rendered in of its assets and the operation of the AIMCO Operating
connection with such transactions. Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 70
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, the liability of the limited partners in negligence, no OP Unitholder has personal liability for
all respects is limited to the capital contributions the AIMCO Operating Partnership's debts and
paid or to be paid by such limited partners under the obligations, and liability of the OP Unitholders for
provisions of your partnership's agreement of limited the AIMCO Operating Partnership's debts and obligations
partnership, except as required by applicable law and is generally limited to the amount of their invest-
certain additional capital contributions required by ment in the AIMCO Operating Partnership. However, the
limited partners in certain circumstances as set forth limitations on the liability of limited partners for
in your partnership's agreement of limited partnership. the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner has the fiduciary responsibility Unless otherwise provided for in the relevant
for the safekeeping and use of all funds and assets of partnership agreement, Delaware law generally requires
your partnership. Your partnership's agreement of a general partner of a Delaware limited partnership to
limited partnership provides that the general partner adhere to fiduciary duty standards under which it owes
and its affiliates are not required to devote their its limited partners the highest duties of good faith,
full time to the conduct of the affairs of your fairness and loyalty and which generally prohibit such
partnership, but are required to use their best efforts general partner from taking any action or engaging in
in carrying out and implementing the purposes of your any transaction as to which it has a conflict of
partnership and to devote to the conduct of the affairs interest. The AIMCO Operating Partnership Agreement
of your partnership such time and activity as they, in expressly authorizes the general partner to enter into,
their discretion, deem reasonably necessary therefor. on behalf of the AIMCO Operating Partnership, a right
Once the partnership's property is at a 90% occupancy of first opportunity arrangement and other conflict
rate, the general partner may construct and develop any avoidance agreements with various affiliates of the
new adult congregate living facility in the market area AIMCO Operating Partnership and the general partner, on
of the partnership's property. such terms as the general partner, in its sole and
absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 71
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders
partners owning a majority of the Operating Partnership Agreement, have voting rights only with
outstanding units may alter the the holders of the Preferred OP respect to certain limited matters
primary purpose of your Units will have the same voting such as certain amendments and
partnership, elect a successor rights as holders of the Common OP termination of the AIMCO Operating
general partner to replace a Units. See "Description of OP Partnership Agreement and certain
removed general partner and approve Units" in the accompanying transactions such as the
or disapprove the sale of the Prospectus. So long as any institution of bankruptcy
partnership's property made during Preferred OP Units are outstand- proceedings, an assignment for the
the time period specified in your ing, in addition to any other vote benefit of creditors and certain
partnership's agreement or pursuant or consent of partners required by transfers by the general partner of
to the general partner's right of law or by the AIMCO Operating its interest in the AIMCO Operating
first refusal in Partnership Agree- Part-
</TABLE>
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<PAGE> 72
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
certain circumstances. The approval ment, the affirmative vote or nership or the admission of a
of the limited partners owning at consent of holders of at least 50% successor general partner.
least 80% of the units is required of the outstanding Preferred OP
to remove the general partner for Units will be necessary for Under the AIMCO Operating Partner-
misconduct and also to dissolve effecting any amendment of any of ship Agreement, the general partner
your partnership upon such mis- the provisions of the Partnership has the power to effect the
conduct. The consent of all limited Unit Designation of the Preferred acquisition, sale, transfer,
partners is required for your OP Units that materially and exchange or other disposition of
partnership to engage in business adversely affects the rights or any assets of the AIMCO Operating
other than that set forth in your preferences of the holders of the Partnership (including, but not
partnership's agreement of limited Preferred OP Units. The creation or limited to, the exercise or grant
partnership and to amend your issuance of any class or series of of any conversion, option,
partnership's agreement of limited partnership units, including, privilege or subscription right or
partnership, subject to certain without limitation, any partner- any other right available in
exceptions. ship units that may have rights connection with any assets at any
senior or superior to the Preferred time held by the AIMCO Operating
A general partner may cause the OP Units, shall not be deemed to Partnership) or the merger,
dissolution of your partnership if materially adversely affect the consolidation, reorganization or
it is unable to serve in such rights or preferences of the other combination of the AIMCO
capacity. However, your partnership holders of Preferred OP Units. With Operating Partnership with or into
may continue if the limited respect to the exercise of the another entity, all without the
partners holding a majority of the above described voting rights, each consent of the OP Unitholders.
units choose to do so and elect a Preferred OP Units shall have one
new general partner within 120 days (1) vote per Preferred OP Unit. The general partner may cause the
of such dissolution. dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Net Cash Flow (as $ per Preferred OP Unit; tribute quarterly all, or such
defined in your partnership's provided, however, that at any time portion as the general partner may
agreement of limited partnership) and from time to time on or after in its sole and absolute discretion
are to be distributed periodically, the fifth anniversary of the issue determine, of Available Cash (as
but no less frequently than date of the Preferred OP Units, the defined in the AIMCO Operating
annually. The distributions payable AIMCO Operating Partnership may Partnership Agreement) generated by
to the partners are not fixed in adjust the annual distribution rate the AIMCO Operating Partnership
amount and depend upon the on the Preferred OP Units to the during such quarter to the general
operating results and net sales or lower of (i) % plus the annual partner, the special limited
refinancing proceeds available from interest rate then applicable to partner and the holders of Common
the disposition of your U.S. Treasury notes with a maturity OP Units on the record date
partnership's assets. Your of five years, and (ii) the annual established by the general partner
partnership has not made any dividend rate on the most recently with respect to such quarter, in
distributions in the past and is issued AIMCO non-convertible accordance with their respective
not projecting to make any preferred stock which ranks on a interests in the AIMCO Operating
distributions in 1998. No limited parity with its Class H Cumu- Partnership on such record date.
partner has priority over any other Holders of any other Pre-
limited partner in respect to
distributions.
</TABLE>
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<PAGE> 73
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
The general partner may, in its There is no public market for the There is no public market for the
discretion, transfer all of the Preferred OP Units and the OP Units. The AIMCO Operating Part-
units in lieu of a transfer of all Preferred OP Units are not listed nership Agreement restricts the
of the assets of your partnership on any securities exchange. The transferability of the OP Units.
in the event of a sale in Preferred OP Units are subject to Until the expiration of one year
accordance with the terms of your restrictions on transfer as set from the date on which an OP
partnership. Upon receiving an forth in the AIMCO Operating Unitholder acquired OP Units,
offer to purchase units held by a Partnership Agreement. subject to certain exceptions, such
limited partner, such limited OP Unitholder may not transfer all
partner must first offer to sell Pursuant to the AIMCO Operating or any portion of its OP Units to
such units to the general partner Partnership Agreement, until the any transferee without the consent
for a period of fifteen day period expiration of one year from the of the general partner, which
on the same terms as the offer date on which a holder of Preferred consent may be withheld in its sole
received. If the general partner OP Units acquired Preferred OP and absolute discretion. After the
does not exercise the right to Units, subject to certain expiration of one year, such OP
purchase such units, the limited exceptions, such holder of Unitholder has the right to
partner may accept the offer and Preferred OP Units may not transfer transfer all or any portion of its
transfer such units to the all or any portion of its Pre- OP Units to any person, subject to
transferee. A transferee may become ferred OP Units to any transferee the satisfaction of certain
a substitute limited partner, if: without the consent of the general conditions specified in the AIMCO
(1) the transferee is not a minor, partner, which consent may be Operating Partnership Agreement,
an incompetent, a nonresident alien withheld in its sole and absolute including the general partner's
or foreign partnership, (2) such discretion. After the expiration of right of first refusal. See
transfer will not result in the one year, such holders of Preferred "Description of OP Units --
dissolution of your partnership for OP Units has the right to transfer Transfers and Withdrawals" in the
tax purposes, (3) such transfer all or any portion of its Preferred accompanying Prospectus.
does not violate applicable OP Units to any person, subject to
securities laws, (4) the general the satisfaction of
partner approves, which
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
approval may be withheld for any certain conditions specified in the After the first anniversary of
reason, (5) the transferee agrees AIMCO Operating Partnership Agree- becoming a holder of Common OP
to be bound by your partnership's ment, including the general Units, an OP Unitholder has the
agreement of limited partnership partner's right of first refusal. right, subject to the terms and
and (6) the transferee reimburses conditions of the AIMCO Operating
your partnership for any costs in- After a one-year holding period, a Partnership Agreement, to require
curred in connection with the holder may redeem Preferred OP the AIMCO Operating Partnership to
transaction. Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
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CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO in
June, 1997, when AIMCO acquired NHP. Accordingly, the general partner of your
partnership is an affiliate of the AIMCO Operating Partnership and, therefore,
has substantial conflicts of interest with respect to the offer. The general
partner of your partnership has a fiduciary obligation to obtain a fair offer
price for you, even as a subsidiary of AIMCO. It also has a duty to remove the
property manager for your partnership's property, under certain circumstances,
even though the property manager is also an affiliate of AIMCO. The conflicts of
interest include the fact that a decision to remove, for any reason, the general
partner of your partnership from its current position as a general partner of
your partnership would result in a decrease or elimination of the substantial
management fees paid to an affiliate of the general partner of your partnership
for managing your partnership's property. Additionally, we desire to purchase
units at a low price and you desire to sell units at a high price. The general
partner of your partnership makes no recommendation as to whether you should
tender or refrain from tendering your units. Such conflicts of interest in
connection with the offer and the operation of AIMCO differ from those conflicts
of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and a 95% non-voting
interest in the manager of your partnership's property. The general partner of
your partnership receives a fee of $2,083 per month for its services as general
partner from your partnership and may receive reimbursement for expenses
generated in its capacity as general partner. The property manager received
management fees of $427,385 in 1996, $437,571 in 1997 and $215,708 for the first
six months of 1998. The AIMCO Operating Partnership has no current intention of
changing the fee structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. We conducted two
prior tender offers for units of your partnership. In August, 1997 we acquired a
0.7576% interest in your partnership through the first tender offer. In June
1998, we acquired an additional 0.3788% interest in your partnership through the
second tender offer. Although we have no current plans to conduct future
exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering.
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YOUR PARTNERSHIP
GENERAL
Casa Del Mar Associates Limited Partnership is a Florida limited
partnership which raised net proceeds of approximately $7,400,000 in 1988
through a private offering. The promoter for the private offering of your
partnership was Stephen A. Goldberg. NHP acquired your partnership in July 1996.
AIMCO acquired NHP in June, 1997. There are currently a total of 77 limited
partners of your partnership and a total of 99 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the single
apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on August 26, 1988 for the purpose of owning
and operating an assisted living apartment property located in Boca Raton,
Florida, known as "Casa Del Mar." Your partnership's property consists of 214
apartment units. There are 141 one-bedroom apartments and 73 two-bedroom
apartments. Assisted living services are provided in 60 units and 154 units
provide independent living. The total rentable square footage of your
partnership's property is 168,832 square feet. Your partnership's property had
an average occupancy rate of approximately 96% in 1997 and 92% during the first
six months of 1998. The average annual rent per apartment unit is approximately
$35,520.
Your partnership's property provides residents with a number of amenities
and services. Each apartment is equipped with a washer and dryer. There are
emergency pull cords in every apartment and there is a courtesy security patrol
from 5pm - 8am every day. Your partnership's property provides transportation to
doctor's appointments within a 5-mile radius of the property. Group bus trips to
banks, shopping, and entertainment activities take place on pre-announced
schedules. Meal service is available three times per day in addition to a
snack/sandwich shop. Five course dinners are offered nightly with fourteen
entree choices. Activities include billiards, fitness programs with a certified
trainer, movies, swimming pool, spa, movies, lectures and live entertainment in
the property's auditorium. Preferred Home Health, an affiliate of AIMCO, is a
home health care agency with an office on site.
PROPERTY MANAGEMENT
Since 1997, your partnership's property has been managed by an entity which
is now an affiliate of AIMCO. Pursuant to the management agreement between the
property manager and your partnership, the property manager operates your
partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $427,385, $437,571 and $215,708, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2038 unless earlier dissolved. Your
partnership has no present intention to liquidate, sell, finance or refinance
your partnership's property within any specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
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An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $13,800,862, payable to Mellon Bank MD, which bears interest at
the rate of 8.12%. The mortgage debt is due in August 2005. In addition, your
partnership had borrowed $1,714,490 (including accrued interest) from an
unrelated party on an unsecured basis as of June 30, 1998. The majority of these
borrowings bear interest at 9% and are due July 2006. Your partnership's
agreement of limited partnership also allows the general partner of your
partnership to lend funds to your partnership. As of June 30, 1998, the general
partner of your partnership had outstanding loans (including accrued and unpaid
interest) of $5,906,796 to your partnership, which generally bear interest at a
rate of 9% and mature in July 2006.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. The 1996 financial statements have
been audited by Arthur Andersen LLP and the 1997 financial statements have been
audited by Ernst & Young LLP. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS
CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER.
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Below is selected financial information for Casa Del Mar Associates Limited
Partnership taken from the financial statements described above. Certain amounts
in the 1996 financial statements have been reclassified to conform to the June
30, 1998, June 30, 1997 and December 31, 1997 presentations. See "Index to
Financial Statements."
<TABLE>
<CAPTION>
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
-----------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate, net of accumulated depreciation.......... $16,635,564 $16,604,478 $16,793,217 $16,780,268
Cash and cash equivalents............................. 184,927 41,820 32,413 43,412
Receivables........................................... 42,630 15,065 32,102 17,079
Tenant security deposits.............................. 107,054 73,253 106,406 70,783
Escrow deposits....................................... 531,773 516,145 335,162 320,590
Deferred costs, net................................... 254,235 288,133 271,184 305,082
Other assets.......................................... 95,324 89,733 85,760 71,974
----------- ----------- ----------- -----------
Total Assets................................ $17,851,507 $17,628,627 $17,656,244 $17,609,188
=========== =========== =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Mortgage Note payable................................. $13,800,862 $14,019,912 $13,910,041 $14,120,604
Notes payable and accrued interest to related
parties............................................. 5,906,796 5,029,089 5,259,171 5,162,446
Notes and accrued interest -- other................... 1,714,490 1,594,875 1,652,243 1,541,382
Tenant security deposits.............................. 537,902 536,123 557,395 584,373
Accounts payable and accrued expenses................. 280,418 413,535 486,989 262,056
Accounts payable -- affiliates........................ 217,643 74,310 145,857 75,277
Accrued interest payable.............................. 93,386 94,834 94,125 95,515
Unearned rent......................................... -- -- 8,210 15,678
Other liabilities..................................... 77,649 138,899 77,737 138,944
----------- ----------- ----------- -----------
22,629,146 21,901,577 22,191,768 21,996,275
Partners' Deficit..................................... (4,777,639) (4,272,950) (4,535,524) (4,387,087)
----------- ----------- ----------- -----------
Total Liabilities and Partners' Deficit..... $17,851,507 $17,628,627 $17,656,244 $17,609,188
=========== =========== =========== ===========
</TABLE>
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<TABLE>
<CAPTION>
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
---------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -----------------------
1998 1997 1997 1996
----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rental Income.......................................... $3,462,716 $3,497,182 $6,958,953 $6,685,843
Other Income........................................... 170,907 202,747 370,584 275,686
---------- ---------- ---------- ----------
Subtotal....................................... 3,633,623 3,699,929 7,329,537 6,961,529
Interest Income.......................................... 4,274 2,643 6,290 1,659
---------- ---------- ---------- ----------
3,637,897 3,702,572 7,335,827 6,963,188
Expenses:
Payroll and related expenses........................... 1,156,225 1,098,446 2,226,739 2,169,722
Utilities.............................................. 123,311 130,435 257,735 266,593
Repairs and maintenance................................ 249,526 206,028 439,006 460,680
Advertising............................................ 79,936 12,290 120,584 17,218
Real estate and personal property taxes................ 156,960 155,220 298,946 295,661
Insurance.............................................. 20,235 17,190 47,241 68,867
Health center expenses................................. 370,393 414,924 873,779 833,260
---------- ---------- ---------- ----------
Subtotal....................................... 2,156,586 2,034,533 4,264,030 4,112,001
General and administrative............................... 138,306 177,149 293,600 270,143
Management fees.......................................... 215,708 222,929 437,571 427,385
Interest................................................. 905,975 894,580 1,762,404 1,824,452
Depreciation and amortization............................ 463,437 463,268 930,683 1,078,157
---------- ---------- ---------- ----------
3,880,012 3,792,459 7,688,288 7,712,138
---------- ---------- ---------- ----------
Loss before extraordinary item........................... (242,115) (89,887) (352,461) (748,950)
Extraordinary item -- gain on restructuring of debt...... -- -- -- 350,257
---------- ---------- ---------- ----------
Net Loss....................................... $ (242,115) $ (89,887) $ (352,461) $ (398,693)
========== ========== ========== ==========
</TABLE>
\
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited and unaudited financial statements included elsewhere herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Loss
Your partnership recognized net loss of $242,115 for the six months ended
June 30, 1998, compared to net loss of $89,887 for the six months ended June 30,
1997. The increased net loss of $152,228, or 169%, was primarily due to
decreased rental and other property revenues and increased operating expenses
and general administrative expenses discussed below.
Revenues
Rental and other property revenues of your partnership totaled $3,633,623
for the six months ended June 30, 1998, compared to $3,699,929 for the six
months ended June 30, 1997, a decrease of $66,306, or 2%. This decline was
related to higher vacancy rates during 1998 than 1997.
Expenses
Operating expenses of your partnership, consisting of utilities (net of
reimbursements received from tenants), contract services, payroll, turnover
costs, repairs and maintenance, advertising and marketing, property taxes,
insurance and health center expenses, totaled $2,156,586 for the six months
ended June 30, 1998, compared to $2,034,533 for the six months ended June 30,
1997, an increase of $122,053, or 6%. This increase was due to higher payroll
and related expenses, repairs and maintenance costs and advertising costs, which
were somewhat offset by reduced health center expenses, during 1998. 401(k)
eligibility requirements changed when AIMCO purchased the general partner and
the property manager from NHP in 1997. As a result, the number of eligible
employees increased resulting in higher payroll expenses. During 1998, a new
advertising agency was hired to develop a marketing strategy to improve
occupancy. 1998 repairs and maintenance increased over the prior period due to
repairs related to the kitchen located on the premises, as well as cost
associated with the turnover of vacant units. In March 1998, AIMCO contracted
with a new food service to provide a lower cost food service program. As a
result, health center expenses decreased in 1998 by $44,531. Your partnership's
management expenses totaled $215,708 for the six months ended June 30, 1998,
compared to $222,929 for the six months ended June 30, 1997, a decrease of
$7,221, or 3%. Management fees are based on 6% of collected revenues, which
decreased in 1998.
General and Administrative Expenses
General and administrative expenses decreased to $138,306 for the six
months ended June 30, 1998 from $177,149 for the six months ended June 30, 1997,
a decrease of $38,843, or 22%. This was primarily due to recruiting expense of
$27,117 incurred in 1997, but not in 1998.
Interest Expense
Interest expense totaled $905,975 for the six months ended June 30, 1998,
compared to $894,580 for the six months ended June 30, 1997, an increase of
$11,395 or 1%.
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<PAGE> 81
Interest Income
Interest income totaled $4,274 for the six months ended June 30, 1998,
compared to $2,643 for the six months ended June 30, 1997, an increase of $1,631
or 62%. This increase was related to interest income earned on operating funds.
Comparison of the year ended December 31, 1997 to the year ended December
31, 1996
Net Loss
Your partnership recognized loss before extraordinary item of $352,461 for
the year ended December 31, 1997, compared to loss before extraordinary item of
$748,950 for the year ended December 31, 1996. The decrease in loss before
extraordinary item of $396,489, or 53%, was primarily due to increased rental
and other property revenues in 1997. Your partnership recognized net loss of
$352,461 for the year December 31, 1997, compared to net loss of $398,693 for
the year ended December 31, 1996, a decrease in net loss of $46,232, or 12%. The
reasons for these variances are discussed below.
Revenues
Rental and other property revenues of your partnership totaled $7,329,537
for the year ended December 31, 1997, compared to $6,961,529 for the year ended
December 31, 1996, an increase of $368,008, or 5%. This increase was primarily a
result of an increase in 1997 average rental rates.
Expenses
Operating expenses of your partnership, consisting of, utilities (net of
reimbursement received from tenants), contract services, payroll, turnover
costs, repairs and maintenance, advertising and marketing, property taxes,
insurance and health center expenses, totaled $4,264,030 for the year ended
December 31, 1997, compared to $4,112,001 for the year ended December 31, 1996,
an increase of $152,029, or 4%. 401(k) eligibility requirements changed when NHP
purchased the general partner of your partnership and assumed management of your
partnership in July 1996. As a result, the number of eligible employees
increased resulting in increased payroll expenses of $57,017. An accelerated
marketing strategy was implemented to reduce vacancies in late 1997, resulting
in an increase in advertising expenses of $103,366. Management expenses totaled
$437,571 for the year December 31, 1997, compared to $427,385 for the year ended
December 31, 1996, an increase of $10,186, or 2%. Depreciation and amortization
totaled $930,683 in 1997 compared to $1,078,157 in 1996, a decrease of $147,474
or 14%. This decrease in depreciation and amortization was due to numerous
assets becoming fully depreciated during 1997.
General and Administrative Expenses
General and administrative expenses increased to $293,600 for the year
ended December 31, 1997 from $270,143 for the year ended December 31, 1996, an
increase of $23,457, or 9%. This was due primarily to recruiting expense of
$27,117 incurred in 1997, but not in 1996.
Interest Expense
Interest expense totaled $1,762,404 for the year ended December 31, 1997,
compared to $1,824,452 for the year ended December 31, 1996, a decrease of
$62,048 or 3%. This decrease in interest expense was due to the forgiveness of
debt of $452,369 and the reduction of the interest rates charged on your
partnership's notes payable to related parties and notes payable to others from
13% to 9% per annum.
Interest Income
Interest income totaled $6,290 for the year ended December 31, 1997,
compared to $1,659 for the year ended December 31, 1996, an increase of $4,631,
or 279%. This increase is related to interest earned on operating funds.
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Liquidity and Capital Resources
Your partnership has periodically required loans from the partners to cover
cash flow deficiencies; however, the partners are not obligated to provide
additional funds to cover further cash flow deficiencies. Accordingly, your
partnership's ability to continue operating in its present form is dependent
upon its ability to generate sufficient cash flow from operations to fund
necessary capital improvements, debt service and other cash flow needs that may
arise or to arrange for further loans from partners or other sources.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Your partnership's agreement of
limited partnership provides that neither the general partner of your
partnership nor any of its affiliates performing services on behalf of your
partnership will be liable to your partnership or any of the offerees for any
act or omission by any such person if such person, in good faith, determined
that such course of conduct was in the best interests of your partnership,
provided that such act or omission did not constitute misconduct or negligence
on the part of such person. As a result, offerees might have a more limited
right of action in certain circumstances than they would have in the absence of
such a provision in your partnership's agreement of limited partnership. The
general partner of your partnership is owned by AIMCO. See "Conflicts of
Interest".
Your Partnership Agreement also provides that the general partner of your
partnership and certain related parties are indemnified from losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims sustained by
them in connection with your partnership (except to the extent indemnification
is prohibited by law) provided that the course of conduct did not constitute
negligence or misconduct on the part of the general partner or its affiliates.
Notwithstanding the foregoing, none of the above-mentioned persons is to be
indemnified by your partnership from liability, loss, damage, cost or expense
incurred by him in connection with any claim involving allegations that such
person violated Federal or state securities laws unless (a) there has been a
successful adjudication on the merits of the claims of each count involving
alleged securities law violations as to the person seeking indemnification, (b)
such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction, or (c) a court of competent jurisdiction has approved a
settlement of the claims against the person seeking indemnification. In each of
the foregoing situations, the court of law considering the request for
indemnification must be advised as to the position of the SEC and any other
applicable regulatory authority regarding indemnification for violations of
securities laws. Indemnification may not be enforceable as to certain
liabilities arising from claims under the Securities Act of 1933, as amended and
the rules and regulations promulgated thereunder and state securities laws; and,
in the opinion of the SEC, such indemnification is contrary to the public policy
and is therefore unenforceable. As part of its assumption of liabilities in the
consolidation, AIMCO will indemnify the general partner of your partnership and
their affiliates for periods prior to and following the consolidation to the
extent of the indemnity under the terms of your partnership's agreement of
limited partnership and applicable law.
Your partnership does not pay for any insurance, other than public
liability insurance, covering liability of the general partner of your
partnership or any other indemnified person for acts or omissions for which
indemnification is not permitted by your partnership's Agreement.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has not made any distributions in the past five years. The
original cost per unit was $74,000.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the
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admission of the transferee as a substitute limited partner in your partnership
require the consent of the general partner of your partnership under your
partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner) was as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1996......................... 0.0 0.00% 0
1997......................... 1.0 0.76% 1
1998 (through June 30)....... 0.5 0.38% 1
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
In August, 1997 we acquired 0.7576% interest in your partnership through a
prior tender offer. In June 1998, we acquired an additional 0.3788% interest in
your partnership through another tender offer. Other than the units owned as a
result of these prior tender offers, neither the AIMCO Operating Partnership,
nor, to the best of its knowledge, any of its affiliates, (i) beneficially own
or have a right to acquire any units, (ii) have effected any transaction in the
units, or (iii) have any contract, arrangement, understanding or relationship
with any other person with respect to any securities of your partnership,
including, but not limited to, contracts, arrangements, understandings or
relationships concerning transfer or voting thereof, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against loss
or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1996........................................................ $24,996
1997........................................................ $$24,996
1998 (through June 30)...................................... $12,498
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1996........................................... $427,385
1997........................................... $437,571
1998 (through June 30)......................... $215,708
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-78
<PAGE> 84
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The audited financial statements of Casa Del Mar Associates Limited
Partnership at December 31, 1997 and for the year then ended, appearing in this
Prospectus Supplement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The audited financial statements of Casa Del Mar Associates Limited
Partnership at December 31, 1996 and for the year then ended, appearing in this
Prospectus Supplement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon appearing elsewhere
herein, and are included herein in reliance upon the authority of such firm as
experts in accounting and auditing in giving said reports.
S-79
<PAGE> 85
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Statements of Operations for six months ended June 30, 1998
(Unaudited) and 1997 (Unaudited) and the year ended
December 31, 1997......................................... F-3
Balance Sheets as of June 30, 1998 (Unaudited) and December
31, 1997.................................................. F-4
Statements of Partners' Capital Deficit for the year ended
December 31, 1997 and the six months ended June 30, 1998
(Unaudited)............................................... F-5
Statements of Cash Flows for the six months ended June 30,
1998 (Unaudited) and 1997 (Unaudited) and the year ended
December 31, 1997......................................... F-6
Notes to Financial Statements............................... F-7
Report of Independent Public Accountants.................... F-10
Balance Sheet as of December 31, 1996....................... F-11
Statement of Operations for the year ended December 31,
1996...................................................... F-12
Statement of Changes in Partners' Deficit for the year ended
December 31, 1996......................................... F-13
Statement of Cash Flows for the year ended December 31,
1996...................................................... F-14
Notes to Financial Statements............................... F-15
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT AUDITORS
To the Partners
Casa Del Mar Associates Limited Partnership
We have audited the accompanying balance sheet of Casa Del Mar Associates
Limited Partnership, a limited partnership, as of December 31, 1997, and the
related statements of operations, partners' capital deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Casa Del Mar Associates
Limited Partnership at December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 3 to the financial statements, the Partnership's
recurring deficiencies in cash flow raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
------------------------------------
ERNST & YOUNG LLP
Indianapolis, Indiana
March 20, 1998
F-2
<PAGE> 87
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------- YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1998 1997 1997
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES
Rental income.......................................... $3,462,716 $3,497,182 $6,958,953
Interest income........................................ 4,274 2,643 6,290
Other income........................................... 170,907 202,747 370,584
---------- ---------- ----------
3,637,897 3,702,572 7,335,827
EXPENSES
Payroll and related expenses........................... 1,156,225 1,098,446 2,226,739
Utilities.............................................. 123,311 130,435 257,735
Repairs and maintenance................................ 249,526 206,028 439,006
Advertising............................................ 79,936 12,290 120,584
Real estate and personal property taxes................ 156,960 155,220 298,946
Insurance.............................................. 20,235 17,190 47,241
General and administrative............................. 138,306 177,149 293,600
Management fees........................................ 215,708 222,929 437,571
Health center expenses................................. 370,393 414,924 873,779
Interest............................................... 905,975 894,580 1,762,404
Depreciation and amortization.......................... 463,437 463,268 930,683
---------- ---------- ----------
3,880,012 3,792,459 7,688,288
---------- ---------- ----------
Net loss..................................... $ (242,115) $ (89,887) $ (352,461)
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 88
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Real Estate
Land...................................................... $ 4,564,484 $ 4,564,484
Buildings and improvements................................ 16,448,785 16,159,949
Furniture, fixture and equipment.......................... 3,661,852 3,661,852
----------- -----------
24,675,121 24,386,285
Less accumulated depreciation............................. 8,039,557 7,593,068
----------- -----------
16,635,564 16,793,217
Cash and cash equivalents................................... 184,927 32,413
Receivables from tenants, net of allowance.................. 35,580 28,052
Receivables -- other........................................ 4,050 4,050
Tenant security deposits.................................... 107,054 106,406
Escrow deposits............................................. 531,773 335,162
Deferred costs, net......................................... 254,235 271,184
Other assets................................................ 95,324 85,760
----------- -----------
Total assets...................................... $17,851,507 $17,656,244
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
Mortgage note payable....................................... $13,800,862 $13,910,041
Notes and accrued interest payable.......................... 1,714,490 1,652,243
Notes payable and accrued interest to related parties....... 5,906,796 5,259,171
Tenant security deposits.................................... 537,902 557,395
Accounts payable and accrued expenses....................... 123,458 486,989
Accounts payable -- affiliates.............................. 217,643 145,857
Accrued mortgage interest payable........................... 93,386 94,125
Unearned rent............................................... -- 8,210
Accrued real estate taxes................................... 156,960 --
Other liabilities........................................... 77,649 77,737
----------- -----------
22,629,146 22,191,768
Partners' capital deficit................................... (4,777,639) (4,535,524)
----------- -----------
Total liabilities and partners' capital deficit... $17,851,507 $17,656,244
=========== ===========
</TABLE>
See accompanying notes
F-4
<PAGE> 89
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1997
AND SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SPECIAL PREFERRED
GENERAL LIMITED LIMITED
PARTNER PARTNER PARTNER TOTAL
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' capital deficit at January 1, 1997
(Note 2)........................................... $(473,533) $(2,040,919) $(1,668,611) $(4,183,063)
Net loss............................................. (19,385) (68,730) (264,346) (352,461)
--------- ----------- ----------- -----------
Partners' capital deficit at December 31, 1997....... $(492,918) $(2,109,649) $(1,932,957) $(4,535,524)
Net loss (unaudited)................................. (13,280) (47,083) (181,090) (241,453)
--------- ----------- ----------- -----------
Partners' capital deficit at June 30, 1998
(unaudited)........................................ $(506,198) $(2,156,732) $(2,114,047) $(4,776,977)
========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 90
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------- YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1998 1997 1997
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Revenue
Rental income............................................. $ 3,443,978 $ 3,483,518 $ 6,938,914
Interest.................................................. 4,274 2,643 6,290
Other..................................................... 170,907 202,747 370,584
----------- ----------- -----------
3,619,159 3,688,908 7,315,788
Expenses
Payroll and related expenses.............................. (1,244,955) (1,098,447) (2,049,914)
Utilities................................................. (123,311) (130,435) (257,735)
Repairs and maintenance................................... (417,405) (209,789) (412,210)
Advertising............................................... (79,936) (12,290) (120,584)
Real estate and personal property taxes................... -- -- (298,946)
Insurance................................................. (29,798) (34,949) (69,628)
General and administrative................................ (173,941) (177,149) (293,601)
Management fee............................................ (168,241) (223,897) (332,082)
Health center............................................. (417,338) (414,924) (865,178)
Interest.................................................. (587,292) (883,647) (1,499,000)
Investor service fee...................................... -- -- (10,415)
----------- ----------- -----------
(3,242,217) (3,185,527) (6,209,293)
----------- ----------- -----------
Net cash provided by operating activities.......... 376,942 503,381 1,106,495
CASH FLOW FROM INVESTING ACTIVITIES
Tenant security deposits (asset)............................ (648) (56,729) (89,881)
Funding of escrow deposits.................................. (26,750) (24,075) (49,933)
Escrow deposits, other...................................... (169,861) (117,221) 89,620
Real estate additions....................................... (288,836) (66,505) (705,710)
Sundry...................................................... (112) (23) (44,443)
----------- ----------- -----------
Net cash used in investing activities.............. (486,207) (264,553) (800,347)
CASH FLOW FROM FINANCING ACTIVITIES
Tenant security deposits (liability)........................ (19,493) (48,250) (26,978)
Mortgage principal payments................................. (109,179) (100,692) (210,563)
Advances on notes payable to related parties................ 442,237 -- 44,118
Repayments on note payable to related parties............... (51,786) (91,478) (81,627)
Repayments on notes payable................................. -- -- (19,700)
Sundry...................................................... -- -- (22,397)
----------- ----------- -----------
Net cash used in financing activities.............. 261,779 (240,420) 317,147
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 152,514 (1,592) (10,999)
Cash and cash equivalents at beginning of year.............. 32,413 43,412 43,412
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 184,927 $ 41,820 $ 32,413
----------- ----------- -----------
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net loss.................................................... $ (241,453) $ (89,887) $ (352,461)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 463,437 463,268 930,683
Changes in operating assets and liabilities
Receivable from tenants................................. (10,528) 2,014 (12,571)
Other assets............................................ (9,563) (17,759) (13,786)
Accounts payable and accrued expenses................... (291,722) (4,730) 298,694
Accrued mortgage interest payable....................... (739) (54,231) (54,941)
Accrued interest on notes payable....................... 71,906 120,222 133,890
Accrued interest on notes payable to related parties.... 247,516 (55,058) 184,455
Accrued real estate taxes............................... 156,960 155,220 --
Unearned rent........................................... (8,210) (15,678) (7,468)
----------- ----------- -----------
Net cash provided by operating activities.......... $ 377,604 $ 503,381 $ 1,106,495
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 91
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Casa Del Mar Associates Limited Partnership (the "Partnership") was formed
as a limited partnership under the laws of the state of Florida on August 26,
1988, to own and operate a senior living community consisting of a 154 unit
retirement center of individual apartments and a 60 unit personal care facility
for individuals requiring some additional assistance with the activities of
daily living. The community is known as Casa Del Mar located in Palm Beach
County, Florida.
Allocations of cash distributions and net income and losses are made in
accordance with the Partnership Agreement.
Real estate is recorded on the basis of cost and represents collateral for
the mortgage note payable. Depreciation is computed generally by the
straight-line method over the estimated useful lives of the related assets.
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of three months or less. The affiliated management company
maintains cash concentration accounts on behalf of affiliated entities which are
included in cash and cash equivalents.
Deferred costs consist primarily of financing fees which are amortized over
the related term of the note.
No provision has been made for income taxes or related credits, as the
results of operations are includable in the tax returns of the partners.
Preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The accompanying unaudited financial statements of the Partnership as of
June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and all such adjustments
are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year-end. The results of
operations for the interim periods presented are not necessarily indicative of
the results for the entire year.
NOTE 2 -- PARTNERS' CAPITAL DEFICIT ADJUSTMENT
Partners' capital deficit as of January 1, 1997 has been restated for the
overstatement of depreciation expense in prior years. The following is a
restatement of partners' capital deficit at January 1, 1997:
<TABLE>
<S> <C>
January 1, 1997 partners' capital deficit, as previously
reported.................................................. $(4,387,087)
Restatement................................................. 204,024
-----------
January 1, 1997 partners' capital deficit, as restated...... $(4,183,063)
===========
</TABLE>
NOTE 3 -- GOING CONCERN
The partnership has incurred deficiencies in cash flow which have been
funded by notes from the partners; however, the partners are not obligated to
provide additional funds to cover future deficiencies in
F-7
<PAGE> 92
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
cash flow. Continuation of the partnership operations in the present form is
dependent upon its ability to achieve cash flow, the partners providing
additional notes or obtaining other funds. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 -- MORTGAGE NOTE PAYABLE
The mortgage note payable is due in monthly installments of $112,016,
including interest at 8.12% through August 1, 2005. The monthly payment is based
on a 25 year amortization with a final payment due of $11,669,929. The mortgage
may be prepaid with the payment of a fee as outlined in the note agreement.
Maturities for the next five years are as follows:
<TABLE>
<S> <C>
1998..................................................... $222,867
1999..................................................... 241,653
2000..................................................... 262,022
2001..................................................... 284,108
2002..................................................... 308,056
</TABLE>
NOTE 5 -- NOTES PAYABLE AND ACCRUED INTEREST
The notes payable are unsecured and summarized as follows:
<TABLE>
<S> <C>
Note payable to prior partner, due 2006, interest rate of
9%, principal and interest due monthly to the extent of
net cash flow, as defined................................. $1,428,000
Note payable for equipment purchase, payable in monthly
installments of $1,199 through October 1999, interest rate
of 11.01%................................................. 20,766
Note payable for equipment purchase, payable in monthly
installments of $901 through November 1999, interest rate
of 13.51%................................................. 16,037
----------
1,464,803
Accrued interest............................................ 187,440
----------
$1,652,243
==========
</TABLE>
Aggregate maturities for 1998 and 1999 are $21,293 and $15,510,
respectively.
NOTE 6 -- NOTES PAYABLE AND ACCRUED INTEREST TO RELATED PARTIES
The notes payable are unsecured and summarized as follows:
<TABLE>
<S> <C>
Note payable to an affiliate of a general partner, due July
12, 2006, interest rate of 9%, principal and interest due
monthly to the extent of net cash flow, as defined........ $5,026,373
Note payable to partner, payable from operations, interest
rate of Prime +2%......................................... 44,118
----------
$5,070,491
==========
Accrued interest............................................ 188,680
----------
$5,259,171
==========
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
NHP Florida Management Co., Inc., the managing agent, is an indirectly
owned subsidiary of Apartment Investment and Management Company ("AIMCO").
Personnel working at the project are employees of affiliates of AIMCO. The
Partnership reimburses the affiliates for the actual salaries and related
benefits, as
F-8
<PAGE> 93
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reflected in the accompanying financial statements. Following are the related
party transactions for the described services provided to the project:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
NHP Florida Management Co., Inc.:
Management fee............................................ $437,571
Partners:
Investor Service Fee...................................... 24,996
AIMCO and/or its affiliates:
Insurance policy and claims administration and loss
control................................................ 7,666
Group purchasing organization fee for vendor discounts.... 1,541
Interest Expense.......................................... 133,890
</TABLE>
One-third of the monthly management fee is subordinated and payable on
January 10 of the following year. At December 31, 1997, the subordinated
management fee was $145,857 and is included in accounts payable -- affiliates on
the balance sheet.
F-9
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Casa Del Mar Associates Limited Partnership:
We have audited the accompanying balance sheet of Casa Del Mar Associates
Limited Partnership (a Florida limited partnership, the "Partnership"), as of
December 31, 1996, and the related statements of operations, changes in
partners' deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As indicated in Note 8, the Partnership has experienced deficiencies in
cash flow and has required funding from its partners in the year ended December
31, 1997 and the six months ended June 30, 1998. Continuation of the
Partnership's operations in the present form is dependent on its ability to
achieve cash flow, additional funding from partners, or funding from other
sources.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Casa Del Mar Associates
Limited Partnership as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
April 4, 1997 (except with respect
to the matter discussed in Note 8, as to
which the date is September 14, 1998)
F-10
<PAGE> 95
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS................................... $ 43,412
TENANT RECEIVABLES, net of allowance for doubtful accounts
of $41,247................................................ 17,079
TENANTS' SECURITY DEPOSITS.................................. 70,783
PREPAID INSURANCE........................................... 8,338
FOOD AND LINEN INVENTORY.................................... 26,789
OTHER DEPOSITS.............................................. 33,130
MORTGAGE ESCROW DEPOSITS:
Real estate taxes and insurance........................... 183,149
Replacement reserve....................................... 137,441
-----------
320,590
-----------
RENTAL PROPERTY, AT COST:
Land and improvements, net of accumulated depreciation of
$388,067............................................... 4,943,802
Buildings and improvements, net of accumulated
depreciation of $3,762,804............................. 11,463,811
Furniture, fixtures and equipment, net of accumulated
depreciation of $2,749,436............................. 372,655
-----------
16,780,268
-----------
DEFERRED RENTAL COSTS....................................... 3,717
DEFERRED FINANCE COSTS, net of accumulated amortization of
$33,898................................................... 305,082
-----------
Total assets...................................... $17,609,188
===========
LIABILITIES AND PARTNERS' DEFICIT
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Trade payables............................................ $ 235,820
Accrued wages and payroll taxes........................... 74,460
Accrued interest on mortgage note and notes payable....... 152,394
Accrued interest on advances from affiliate............... 54,446
Accrued management fee.................................... 165,997
-----------
683,117
TENANTS' SECURITY DEPOSITS PAYABLE.......................... 584,373
RENTS RECEIVED IN ADVANCE................................... 15,678
MORTGAGE NOTE PAYABLE....................................... 14,120,604
ADVANCES FROM AFFILIATE..................................... 5,108,000
NOTES PAYABLE............................................... 1,484,503
PARTNERS' DEFICIT........................................... (4,387,087)
-----------
Total liabilities and partners' deficit........... $17,609,188
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-11
<PAGE> 96
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUE:
Rental income............................................. $6,728,184
Other operating income.................................... 230,617
Operating interest income................................. 1,856
----------
Total revenue..................................... 6,960,657
----------
OPERATING EXPENSES:
Food services............................................. 1,521,908
Administrative............................................ 1,162,478
Building services......................................... 765,604
Housekeeping.............................................. 359,673
Health services........................................... 322,300
Social activities......................................... 209,743
Property taxes and insurance.............................. 364,527
Marketing................................................. 82,831
----------
Total operating expenses.......................... 4,789,064
----------
Net operating income...................................... 2,171,593
----------
OTHER EXPENSE:
Interest expense.......................................... 1,858,350
Depreciation.............................................. 1,044,259
Other expense............................................. 17,934
----------
Total other expense............................... 2,920,543
----------
LOSS BEFORE EXTRAORDINARY ITEM.............................. (748,950)
EXTRAORDINARY ITEM -- GAIN ON RESTRUCTURING OF DEBT......... 350,257
----------
NET LOSS.......................................... $ (398,693)
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-12
<PAGE> 97
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SPECIAL PREFERRED
GENERAL LIMITED LIMITED
PARTNER PARTNER PARTNERS TOTAL
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996.................. $(564,938) $(2,002,959) $(1,522,609) $(4,090,506)
Net loss................................ (21,928) (77,745) (299,020) (398,693)
Capital contribution resulting from
forgiveness of general partner
advance.............................. 102,112 -- -- 102,112
--------- ----------- ----------- -----------
BALANCE, December 31, 1996................ $(484,754) $(2,080,704) $(1,821,629) $(4,387,087)
========= =========== =========== ===========
PERCENTAGE INTEREST, as of December 31,
1996.................................... 5.5% 19.5% 75.0%
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE> 98
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (398,693)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation........................................... 1,044,259
Amortization of deferred finance costs................. 33,898
Gain on restructuring of debt.......................... (350,257)
Change in tenant receivables........................... 40,211
Change in tenants' security deposits................... (20,783)
Change in prepaid insurance............................ 31,147
Change in food and linen inventory..................... 60
Change in real estate tax and insurance escrow......... (135,494)
Change in deferred rental costs........................ (3,717)
Change in other deposits............................... (7,230)
Change in accounts payable and accrued expenses........ (6,549)
Change in accrued interest............................. 336,106
Change in accrued management fee....................... 109,661
Change in tenants' security deposits payable........... 37,432
Change in rents received in advance.................... 15,678
----------
Net cash provided by operating activities......... 725,729
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment............. (115,465)
Proceeds from disposition of asset........................ 18,777
Payments to replacement reserve........................... (51,176)
Withdrawals from replacement reserve...................... 10,956
----------
Net cash used in investing activities............. (136,908)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage note payable......................... (184,542)
Payments on advances from affiliates...................... (270,000)
Payments on notes payable................................. (205,434)
----------
Net cash used in financing activities............. (659,976)
----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (71,155)
CASH AND CASH EQUIVALENTS, beginning of year................ 114,567
----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 43,412
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $1,488,346
==========
NONCASH FINANCING ACTIVITIES:
Transfer of accrued interest into mortgage note payable
resulting from refinancing............................. $ 250,746
==========
Capital contribution resulting from forgiveness of general
partner advance........................................ $ 102,112
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-14
<PAGE> 99
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
1. THE PARTNERSHIP:
Casa Del Mar Associates Limited Partnership (the "Partnership") was
organized as of August 26, 1988 pursuant to the laws of the state of Florida,
and according to the Agreement of Limited Partnership (the "Partnership
Agreement"), shall continue until December 31, 2038, unless sooner dissolved in
accordance with the Partnership Agreement.
The Partnership operates a senior living community consisting of 214
apartment units in Palm Beach County, Florida (the "Facility"). The Facility
consists of two self-contained buildings. The first building is a 154-unit
retirement center consisting of a central amenity building and two wings of
individual apartments. The second building is a 60-unit personal care facility,
for those individuals requiring some additional assistance with the activities
of daily living.
On July 12, 1996, a controlling interest in the Partnership's general
partner was acquired by NHP Real Estate Corporation, an affiliate of NHP
Incorporated (see Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with initial
maturities of 90 days or less to be cash equivalents.
NHP Management Company ("NHPMC"), a wholly owned subsidiary of NHP
Incorporated, assumed property management responsibility for the Facility as
part of the purchase effective July 12, 1996. NHPMC maintains at banks
concentrated cash and cash equivalent accounts of affiliated entities for which
it provides property management services. As of December 31, 1996, NHPMC did not
hold any cash on behalf of the Partnership.
RENTAL REVENUE
Property owned by the Partnership is subject to numerous tenant leasing
arrangement having initial terms of one year or less. Rental revenue from these
arrangements is recognized on a straight line basis over the appropriate lease
term.
DEPRECIATION
Depreciation of the land improvements and building and improvements are
computed using the straight line method, assuming a 15 year and 27.5 year life,
respectively. Furniture, fixtures and equipment are depreciated using an
accelerated method, assuming an estimated useful life of 5 to 7 years.
F-15
<PAGE> 100
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AMORTIZATION
Deferred finance costs are amortized over the appropriate mortgage loan
period using the straight-line method, which approximates the effective interest
method. The related amortization is recorded within interest expense in the
accompanying statement of operations.
INCOME TAXES
The Partnership is not a tax paying entity and, accordingly, no provision
has been recorded for Federal or state income tax purposes. The partners are
individually responsible for reporting their share of the Partnership's taxable
income on their income tax returns. In the event of an examination of the
Partnership's tax return by the Internal Revenue Service, the tax liability of
the partners could be changed if an adjustment in the Partnership's income is
ultimately sustained by the taxing authorities.
Certain transactions of the Partnership may be subject to accounting
methods for income tax purposes that differ from the accounting methods used in
preparing these financial statements in accordance with generally accepted
accounting principles. Accordingly, the net income or loss of the Partnership
and the resulting balances in the partners' capital accounts reported for income
tax purposes may differ from the balances reported for those same items in these
financial statements.
IMPLEMENTATION OF NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed Of," which the Partnership
implemented on January 1, 1996. The adoption of this statement did not have an
effect on the Partnership's financial position or results of operations.
3. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS:
Net income of the Partnership is allocated to the partners, pro rata, based
on any negative capital account balances, until such negative capital balances
are eliminated; any remaining income is allocated to the partners, pro rata,
based on their respective percentage interests. Net losses are allocated to the
partners, pro rata, based on any positive capital balances, until such positive
capital balances are eliminated. Any remaining losses are allocated to the
partners, pro rata, based on their respective percentage interests. Net cash
flow is to be distributed, pro rata to the Preferred Limited Partners, until
each Preferred Limited Partner has received distributions equal to a cumulative,
simple 12% annual return on his net cash investment, as defined in the
Partnership Agreement. Any remaining net cash flow will be distributed in
accordance with the percentage interests.
4. MORTGAGE NOTES PAYABLE:
The Partnership is indebted to Washington Capital DUS, Inc. for a first
mortgage note payable (the "First Mortgage Note") in the original amount of
$14,365,000 issued in September 1995. As of December 31, 1996, the First
Mortgage Note had an outstanding balance of $14,120,604. The First Mortgage note
is payable in monthly principal and interest payments of $112,016, with an
interest rate of 8.12% per annum until
F-16
<PAGE> 101
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
August 1, 2005, at which time the full unpaid balance is due and payable.
Minimum annual principal payments are as follows:
<TABLE>
<S> <C>
1997............................................ $ 205,563
1998............................................ 222,867
1999............................................ 241,652
2000............................................ 262,022
2001............................................ 284,078
Thereafter...................................... 12,904,422
-----------
$14,120,604
===========
</TABLE>
In connection with the issuance of the First Mortgage Note, the Partnership
capitalized deferred finance costs of $338,980, which is shown net of
accumulated amortization of $33,898 as of December 31, 1996.
The First Mortgage Note is secured by the buildings and improvements, as
well as other amounts deposited with the lender.
5. ADVANCES FROM AFFILIATE:
Prior to July 12, 1996, the Partnership had been advanced funds from the
general partner. These advances bore interest at 9 percent per annum and were to
become due on December 31, 2002. In connection with the sale of the general
partner interest described in Note 1, any previously accrued and unpaid interest
was added to the principal balance, and the note was assigned to NHP
Incorporated. In addition, $102,112 in principal and accrued interest was
forgiven, resulting in a newly stated outstanding balance of $5,108,000. The
gain on forgiveness of debt is reflected as a capital contribution in the
accompanying statement of changes in partners' deficit. The new advance bears
interest at 9.75 percent per annum, with amounts payable monthly from net cash
flow, as defined in the note agreement. All unpaid principal and interest are
due and payable on July 12, 2006.
F-17
<PAGE> 102
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE:
Prior to July 12, 1996, the Partnership was liable to Casa Del Mar
Participation Corporation, an affiliate of the Partnership, for a note payable
in the original amount of $2,000,000. This note bore interest at a rate of 13
percent, with variable monthly principal and interest payments, until September
1, 2002, when all unpaid amounts were to become due and payable. In connection
with the sale of the general partner interest described in Note 1, this note
payable was restructured such that any previously accrued and unpaid interest
was added to the principal balance and was assigned to Stephen A. Goldberg. In
addition, $350,257 in principal and accrued interest was forgiven, resulting in
newly stated principal balance of $1,428,000. This gain on forgiveness of debt
is reflected as an extraordinary item on the statement of operations. The new
note payable bears interest at 9.00 percent per annum, with amounts payable
monthly from net cash flow, as defined in the loan agreement. All unpaid
principal and interest are due and payable in July 2006.
In addition, as of December 31, 1996, the Partnership was liable for two
notes payable, in the aggregate amount of $56,503, issued for the purpose of
acquiring business equipment. The loans accrued interest at 13.87 percent and
11.54 percent annually, with combined monthly payments of $2,668 and maturities
of October and November 1999, respectively.
7. RELATED-PARTY TRANSACTIONS:
NHPMC is the project management agent under an agreement which extends,
subject to certain conditions, to the year 2020. Certain stockholders owning
approximately 60 percent of the voting stock of NHP Incorporated also control
the entity which holds the general partnership interest in the Partnership.
During 1996, personnel working at the Facility were employees of NHP
Incorporated, and therefore the Facility reimbursed NHP Incorporated for the
actual salaries and related benefits, as reflected in the accompanying financial
statements. At December 31, 1996, trade payables include $196 due to NHP
Incorporated.
During 1996, NHPMC received a fee of $106,187 for its services as
management agent for the period from July 12, 1996 through December 31, 1996. As
part of the management agreement, management fees are calculated as 6 percent of
the Facility's rental collections, with 4 percent paid currently, and the
remaining 2 percent deferred until January of the following year. As of December
31, 1996, $142,462 of deferred management fees is included in accrued management
fee on the accompanying balance sheet.
8. SUBSEQUENT EVENT:
The Partnership has experienced deficiencies in cash flow and has required
funding from its partners in the year ended December 31, 1997 and the six months
ended June 30, 1998. Continuation of the Partnership's operations in the present
form is dependent on its ability to achieve cash flow, additional funding from
partners, or funding from other sources.
F-18
<PAGE> 103
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 104
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 105
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 106
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
$600,000,000 OF
PREFERRED STOCK AND
CLASS A COMMON STOCK
AIMCO PROPERTIES, L.P.
$200,000,000 OF PARTNERSHIP PREFERRED UNITS
$200,000,000 OF PARTNERSHIP COMMON UNITS
We may offer and issue these securities in connection with acquisitions of
businesses, properties, securities or other assets. In addition, we may issue
our Class A Common Stock upon conversion of shares our Preferred Stock, and we
may also issue shares of our Preferred Stock and shares of our Class A Common
Stock in exchange for our Partnership Preferred Units or our Partnership Common
Units tendered for redemption.
Apartment Investment and Management Company has elected to be taxed for
Federal income tax purposes as a REIT. Our Class A Common Stock is listed on the
New York Stock Exchange under the symbol "AIV." On October 5, 1998, the last
reported sales price of our Class A Common Stock on the NYSE was $34 7/8 per
share. There is no public market for our Partnership Preferred Units or our
Partnership Common Units. However, after a one-year holding period, each of our
Partnership Common Units may be redeemed in exchange for a share of our Class A
Common Stock or, at our option, a cash amount equal to the market value of one
share of our Class A Common Stock at the time of the redemption (subject to
antidilution adjustments).
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF MATERIAL RISKS
IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES, INCLUDING WITHOUT
LIMITATION, THE FOLLOWING RISKS:
- Our acquisition and development activities expose us to several negative
factors, including difficulty in managing our rapid growth, the
incurrence of unforeseen costs, possible failure to realize projected
occupancy and rental rates.
- Our organizational documents do not limit the amount of debt that we may
incur, and our Board of Directors may change our leverage policy at any
time. Our cash flow from operations might be insufficient to make
required debt payments, and we might be unable to refinance our debt at
all or on terms as favorable as the terms of our existing debt. In
addition, we are subject to debt covenants that may restrict our ability
to make distributions to investors.
- Our real estate investment and management activities expose us to several
potentially negative factors that are beyond our control such as local
economic conditions, intense competition, potential environmental
liabilities and change of laws, any of which could negatively affect our
financial condition or results of operations.
- We and certain of our officers and/or directors and unconsolidated
subsidiaries have entered into, and may in the future into certain
transactions that may result in conflicts of interest between the us and
such officers and/or directors and unconsolidated subsidiaries.
- If Apartment Investment and Management Company fails to qualify as a
REIT, it (i) would not be allowed a deduction for dividends it pays, (ii)
would be subject to federal income tax at corporate rates, (iii) might
need to borrow funds or liquidate investments on unfavorable terms in
order to pay the applicable tax and (iv) would no longer be required to
make distributions to stockholders.
- Our charter limits the number of shares of our stock that may be held by
any one investor. Consequently, our stockholders are limited in their
ability to effect a change of our control.
- Investors in our partnership units must hold their units for one year,
subject to certain exceptions. Thereafter investors may transfer such
partnership units, subject to the satisfaction of certain conditions,
including the general partner's right of first refusal. Holders of our
partnership units do not have the ability to vote for or remove the
general partner, and therefor they can not effect a change of control of
AIMCO Properties, L.P.
To the extent not otherwise described herein, the form in which the
securities are to be issued, and the terms of such securities, including without
limitation, their specific designation, or aggregate initial offering price,
rate and times of payment of dividends, if any, redemption, conversion and
exchange terms, if any, voting or other rights, if any, and other specific terms
will be set forth in a Prospectus Supplement, together with the terms of
offering of such securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is , 1998.
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY..................................... 1
RISK FACTORS.................................... 2
Risks of Acquisition and Development
Activities.................................. 2
Risks Associated With Debt Financing.......... 3
Increases in Interests Rates May Increase our
Interest Expense............................ 3
Risks of Interest Rate Hedging Arrangements... 3
Covenant Restrictions May Limit Our Ability to
Make Payments to Our Investors.............. 3
We Depend on Distributions and Other Payments
from Our Subsidiaries....................... 4
Real Estate Investment Risks.................. 4
Possible Environmental Liabilities............ 4
Laws Benefitting Disabled Persons May Result
in Unanticipated Expenses................... 4
Risks Relating to Regulation of Affordable
Housing..................................... 5
The Loss of Property Management Contracts
Would Reduce Our Revenues................... 5
Dependence on Certain Executive Officers...... 5
Possible Conflicts of Interest; Transactions
with Affiliates............................. 5
Tax Risks..................................... 6
Possible Adverse Consequences of Limits on
Ownership of Shares......................... 7
Our Charter and Maryland Law May Limit the
Ability of a Third Party to Acquire Control
of the Company.............................. 7
Risks Associated With an Investment in OP
Units....................................... 8
SECURITIES COVERED BY THIS PROSPECTUS........... 14
RATIO OF EARNINGS TO FIXED CHARGES.............. 16
SELECTED HISTORICAL FINANCIAL DATA.............. 17
PER SHARE AND PER UNIT DATA..................... 20
Per Share Data................................ 20
Per Unit Data................................. 20
Stock Prices, Dividends and Distributions..... 21
BUSINESS OF THE COMPANY......................... 22
Operating and Financial Strategies............ 22
Growth Strategies............................. 23
Property Management Strategies................ 26
Accounting Policies and Definitions........... 28
Policies of the Company with Respect to
Certain Other Activities.................... 29
Year 2000 Compliance.......................... 31
DESCRIPTION OF PREFERRED STOCK.................. 31
General....................................... 31
Dividends..................................... 32
Convertibility................................ 33
Redemption and Sinking Fund................... 33
Liquidation Rights............................ 33
Voting Rights................................. 33
Miscellaneous................................. 34
Other Rights.................................. 34
Transfer Agent and Registrar.................. 34
Class B Preferred Stock....................... 34
Class C Preferred Stock....................... 36
Class D Preferred Stock....................... 37
Class E Preferred Stock....................... 38
Class G Preferred Stock....................... 39
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Class H Preferred Stock....................... 40
DESCRIPTION OF COMMON STOCK..................... 41
General....................................... 41
Class A Common Stock.......................... 41
Restrictions on Transfer...................... 42
Class B Common Stock.......................... 43
Business Combinations......................... 44
Control Share Acquisitions.................... 44
DESCRIPTION OF OP UNITS......................... 45
General....................................... 45
Purpose and Business.......................... 45
Management by the AIMCO GP.................... 46
Management Liability and Indemnification...... 47
Compensation and Fees......................... 47
Fiduciary Responsibilities.................... 47
Class B Partnership Preferred Units........... 48
Class C Partnership Preferred Units........... 48
Class D Partnership Preferred Units........... 48
Class E Partnership Preferred Units........... 49
Class F Partnership Preferred Units........... 49
Class G Partnership Preferred Units........... 49
Class H Partnership Preferred Units........... 49
High Performance Units........................ 50
Distributions................................. 50
Allocations of Net Income and Net Loss........ 52
Withholding................................... 52
Return of Capital............................. 52
Redemption Rights............................. 53
Partnership Right to Call Common OP Units..... 53
Transfers and Withdrawals..................... 53
Issuance of Capital Stock by AIMCO............ 54
Dilution...................................... 55
Amendment of the AIMCO Operating Partnership
Agreement................................... 55
Procedures for Actions and Consents of
Partners.................................... 55
Records and Accounting; Fiscal Year........... 56
Reports....................................... 56
Tax Matters................................... 56
Dissolution and Winding Up.................... 56
COMPARISON OF THE AIMCO OPERATING PARTNERSHIP
AND AIMCO..................................... 58
COMPARISON OF COMMON OP UNITS AND CLASS A COMMON
STOCK......................................... 65
FEDERAL INCOME TAXATION OF AIMCO AND AIMCO
STOCKHOLDERS.................................. 67
General....................................... 67
Tax Aspects of AIMCO's Investments in
Partnerships................................ 72
Taxation of Management Subsidiaries........... 73
Taxation of Taxable Domestic Stockholders..... 73
Taxation of Foreign Stockholders.............. 74
Information Reporting Requirements and Backup
Withholding................................. 76
Taxation of Tax-Exempt Stockholders........... 76
FEDERAL INCOME TAXATION OF THE AIMCO OPERATING
PARTNERSHIP AND OP UNITHOLDERS................ 77
Partnership Status............................ 77
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Taxation of OP Unitholders.................... 79
Allocations of AIMCO Operating Partnership
Profits and Losses.......................... 79
Tax Basis of a Partnership Interest........... 79
Cash Distributions............................ 80
Tax Consequences Upon Contribution of Property
to the AIMCO Operating Partnership.......... 80
Limitations on Deductibility of Losses........ 81
Section 754 Election.......................... 82
Depreciation.................................. 82
Sale, Redemption, or Exchange of OP Units..... 83
Termination of the AIMCO Operating
Partnership................................. 83
Alternative Minimum Tax....................... 84
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Information Returns and Audit Procedures...... 84
Taxation of Foreign OP Unitholders............ 85
OTHER TAX CONSEQUENCES.......................... 85
Possible Legislative or Other Actions
Affecting REITs............................. 85
State, Local and Foreign Taxes................ 85
WHERE YOU CAN FIND MORE INFORMATION............. 85
LEGAL MATTERS................................... 86
EXPERTS......................................... 87
GLOSSARY........................................ A-1
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF AIMCO PROPERTIES, L.P.......... B-1
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THE COMPANY
Apartment Investment and Management Company ("AIMCO"), a Maryland
corporation formed on January 10, 1994, is a self-administered and self-managed
REIT engaged in the ownership, acquisition, development, expansion and
management of multi-family apartment properties. As of October 1, 1998, we owned
or managed 396,090 apartment units in 2,303 properties located in 49 states, the
District of Columbia and Puerto Rico. Based on apartment unit data compiled as
of January 1, 1998 by the National Multi Housing Council, we believe that, as of
October 1, 1998, we were the largest owner and manager of multifamily apartment
properties in the United States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
We conduct substantially all of our operations through AIMCO Properties,
L.P., a Delaware limited partnership (the "AIMCO Operating Partnership"). Our
wholly owned subsidiary, AIMCO-GP, Inc. (the "AIMCO GP") is the sole general
partner of the AIMCO Operating Partnership. Through the AIMCO GP and another of
our wholly owned subsidiaries, AIMCO-LP, Inc. (the "Special Limited Partner"),
as of October 1, 1998, we owned approximately an 89% interest in the AIMCO
Operating Partnership. We manage apartment properties for third parties and
affiliates through unconsolidated subsidiaries that we refer to as the
"management companies." Generally, when we refer to "we," "us" or the "Company"
in this prospectus, we are referring to AIMCO, the AIMCO Operating Partnership,
the management companies and their respective subsidiaries.
Our principal executive offices are located at 1873 South Bellaire Street,
17th Floor, Denver, Colorado 80222, and our telephone number is (303) 757-8101.
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RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus before you decide to purchase our securities.
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
Generally. The selective acquisition, development and expansion of
apartment properties is one component of our growth strategy. However, we can
make no assurance as to our ability to identify or complete transactions in the
future. Although we seek to acquire, develop and expand properties only when
such activities are accretive on a per share basis, such transactions may fail
to perform in accordance with our expectations. When we develop or expand
properties, we are subject to the risks that:
- costs may exceed original estimates;
- projected occupancy and rental rates at the property may not be realized;
- financing may not be available on favorable terms;
- construction and lease-up may not be completed on schedule; and
- we may experience difficulty or delays in obtaining necessary zoning,
land-use, building, occupancy, and other governmental permits and
authorizations.
We May Have Difficulty Managing Our Rapid Growth. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned or managed properties
from 132 apartment properties with 29,343 units to 2,303 apartment properties
with 396,090 units as of October 1, 1998. These acquisitions have included
purchases of properties and interests in entities that own or manage properties,
as well as corporate mergers. Our recent merger with Insignia Financial Group,
Inc. ("Insignia") is our largest acquisition so far. Our ability to successfully
integrate acquired businesses and properties depends on our ability to:
- attract and retain qualified personnel;
- integrate the personnel and operations of the acquired businesses;
- maintain uniform standards, controls, procedures and policies; and
- maintain adequate accounting and information systems.
We can provide no assurance that we will be able to accomplish these goals
and successfully integrate any acquired businesses or properties. If we fail to
successfully integrate such businesses, our results of operations could be
adversely affected.
Litigation Associated with Partnership Acquisitions. We have engaged in,
and intend to continue to engage in, the selective acquisition of interests in
limited partnerships that own apartment properties. In some cases, we have
acquired the general partner of a partnership and then made an offer to acquire
the limited partners' interests in the partnership. In these transactions, we
are subject to litigation based on claims that the general partner has breached
its fiduciary duties to its limited partners or that the transaction violates
the
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relevant partnership agreement. Although we intend to comply with our fiduciary
obligations and relevant partnership agreements, we may incur additional costs
in connection with the defense or settlement of such litigation. In some cases,
such litigation may adversely affect our desire to proceed with, or our ability
to complete, a particular transaction. Such litigation could also have a
material adverse effect on our results of operations.
RISKS ASSOCIATED WITH DEBT FINANCING
Our strategy is generally to incur debt to increase the return on our
equity while maintaining acceptable interest coverage ratios. We seek to
maintain a ratio of free cash flow to combined interest expense and preferred
stock dividends of between 2:1 and 3:1. However, our Board of Directors could
change this strategy at any time and increase our leverage. Our organizational
documents do not limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal and interest may
leave us with insufficient cash resources to operate our properties or pay
distributions required to be paid in order to maintain our qualification as a
REIT. We are also subject to the risk that our cash flow from operations will be
insufficient to make required payments of principal and interest, and the risk
that existing indebtedness may not be refinanced or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. If
we fail to make required payments of principal and interest on any debt, our
lenders could foreclose on the properties securing such debt with a consequent
loss of income and asset value to us. As of June 30, 1998, 94% of the properties
that we own or control and 43% of our assets were encumbered by debt. On a pro
forma basis, giving effect to the recent Insignia merger, as of June 30, 1998,
we had $1,626 million of indebtedness outstanding on a consolidated basis, of
which $1,604 million was secured.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE
As of June 30, 1998, approximately $182 million of our debt was subject to
variable interest rates. An increase in interest rates could increase our
interest expense and adversely affect our cash flow and our ability to service
our indebtedness and make distributions.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS
From time to time, in anticipation of refinancing debt, we enter into
agreements to reduce the risks associated with increases in short term interest
rates. Although these agreements provide us with some protection against rising
interest rates, these agreements also reduce the benefits to us when interest
rates decline. These agreements involve the following risks:
- interest rate movements during the term of the agreement may result in a
gain or loss to us;
- we may be exposed to losses if the hedge is not indexed to the same rate
as the debt anticipated to be incurred; and
- if the counterparty to the agreement fails to pay, we may incur a loss.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS
Some of our debt and other securities contain covenants that restrict our
ability to make distributions or other payments to our investors unless certain
financial tests or other criteria are satisfied. In some cases, our subsidiaries
are subject to similar provisions, which may restrict their ability to make
distributions to us. Our primary credit facility provides that we may make
distributions to our investors during any 12-month period in an aggregate amount
that does not exceed the greater of 80% of our funds from operations for such
period or such amount as may be necessary to maintain our REIT status. This
credit facility prohibits all distributions if certain financial ratios and
tests are not satisfied. The preferred stock that we issued in the Insignia
merger prohibits the payment of dividends on our common stock if we fail to make
the payments required by the preferred stock.
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WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES
All of our properties are owned, and all of our operations are conducted,
by the AIMCO Operating Partnership and our other subsidiaries. As a result, we
depend on distributions and other payments from subsidiaries in order to satisfy
our financial obligations and make payments to our investors. The ability of our
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations. As an
equity investor in our subsidiaries, our right to receive assets upon their
liquidation or reorganization will be effectively subordinated to the claims of
their creditors. To the extent that we are recognized as a creditor of such
subsidiaries, our claims would still be subordinated to any security interest in
or other lien on their assets and to any of their debt or other obligations that
are senior to us.
REAL ESTATE INVESTMENT RISKS
Our ability to make payments to our investors depends on our ability to
generate funds from operations in excess of required debt payments and capital
expenditure requirements. Funds from operations and the value of our properties
may be adversely affected by events or conditions which are beyond our control.
Such events or conditions could include:
- the general economic climate;
- competition from other apartment communities and alternative housing;
- local conditions, such as an increase in unemployment or an oversupply of
apartments, that might adversely affect apartment occupancy or rental
rates;
- increases in operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily be offset by
increased rents;
- changes in governmental regulations and the related costs of compliance;
- changes in tax laws and housing laws, including the enactment of rent
control laws or other laws regulating multifamily housing;
- changes in interest rate levels and the availability of financing; and
- the relative illiquidity of real estate investments.
POSSIBLE ENVIRONMENTAL LIABILITIES
Various Federal, state and local laws subject property owners or operators
to liability for the costs of removal or remediation of certain hazardous
substances released on a property. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of the hazardous substances. The presence of, or the failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and our ability to sell or borrow against contaminated
properties. In addition to the costs associated with investigation and
remediation actions brought by governmental agencies, the presence of hazardous
wastes on a property could result in personal injury or similar claims by
private plaintiffs. Various laws also impose, on persons who arrange for the
disposal or treatment of hazardous or toxic substances, liability for the cost
of removal or remediation of hazardous substances at the disposal or treatment
facility. These laws often impose liability whether or not the person arranging
for the disposal ever owned or operated the disposal facility.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places
of public accommodation are required to meet certain Federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. A number of additional Federal, state and local laws exist
which also may require modifications to our properties, or restrict certain
further renovations of the properties, with respect to access thereto by
disabled persons. For example, the Fair Housing Amendments Act of 1988 (the
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"FHAA") requires apartment properties first occupied after March 13, 1990 to be
accessible to the handicapped. Noncompliance with the ADA or the FHAA could
result in the imposition of fines or an award of damages to private litigants
and also could result in an order to correct any non-complying feature, which
could result in substantial capital expenditures. Although we believe that our
properties are substantially in compliance with present requirements, we may
incur unanticipated expenses to comply with the ADA and FHAA.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING
As of October 1, 1998, we owned or controlled 2 properties, held an equity
interest in 783 properties and managed for third parties and affiliates 322
properties that benefit from governmental programs intended to provide housing
to people with low or moderate incomes. These programs, which are usually
administered by the United States Department of Housing and Urban Development
("HUD") or state housing finance agencies, typically provide mortgage insurance,
favorable financing terms or rental assistance payments to the property owners.
As a condition to the receipt of assistance under these programs, the properties
must comply with various requirements, which typically limit rents to
pre-approved amounts. If permitted rents on a property are insufficient to cover
costs, a sale of the property may become necessary, which could result in a loss
of management fee revenue. We usually need to obtain the approval of HUD in
order to manage, or acquire a significant interest in, a HUD-assisted or
HUD-insured property. We can make no assurance that we will always receive such
approval.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES
We manage some properties owned by third parties. For the year ended
December 31, 1997, we derived approximately 2% of our gross revenue from
management of properties owned by third parties. During the same period,
Insignia, which merged with us on October 1, 1998, derived approximately 15% of
its gross revenue from management of properties owned by third parties. We may
suffer a loss of revenue if we lose our right to manage these properties or if
the rental revenues upon which our management fees are based declines. In
general, management contracts may be terminated or otherwise lost as a result
of:
- a disposition of the property by the owner in the ordinary course or as a
result of financial distress of the property owner;
- the property owner's determination that our management of the property is
unsatisfactory;
- willful misconduct, gross negligence or other conduct that constitutes
grounds for termination; or
- with respect to certain affordable properties, termination of such
contracts by HUD or state housing finance agencies, generally at their
discretion.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS
Although we have entered into employment agreements with our Chairman and
Chief Executive Officer, Terry Considine, our President, Peter K. Kompaniez and
our Executive Vice President, Steven D. Ira, the loss of any of their services
could have an adverse effect on our operations.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
We have been, and continue to be, involved in various transactions with a
number of our affiliates, including executive officers, directors and entities
in which they own interests. For example, in order to satisfy certain REIT
requirements, Messrs. Considine and Kompaniez directly or indirectly control the
management companies which manage properties for third parties and affiliates.
Although we own a 95% non-voting interest in these management companies, we have
no control over them or their operations. As a result, the management companies
could implement business decisions or policies that are not in our best
interests. We have adopted certain policies designed to minimize or eliminate
the conflicts of interest inherent in these transactions, including a
requirement that a majority of our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the
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influence of such conflicts. Furthermore, such policies are subject to change
without the approval of our stockholders.
TAX RISKS
Adverse Consequences of Failure to Qualify as a REIT. Although we believe
that we operate in a manner that enables us to meet the requirements for
qualification as a REIT for Federal income tax purposes, we do not plan to
request a ruling from the IRS that we qualify as a REIT. We have, however,
received an opinion from the law firm of Skadden, Arps, Slate, Meagher & Flom
LLP to the effect that, beginning with our initial taxable year ended December
31, 1994, we were organized in conformity with the requirements for
qualification as a REIT under the Internal Revenue Code.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Our opinion of counsel is based upon certain representations and
covenants made by us regarding the past, present and future conduct of our
business operations. Furthermore, our opinion of counsel is conditioned on, and
our continued qualification as a REIT will depend on, our ability to meet,
through actual annual operating results, the various REIT qualification tests.
Such requirements are discussed in more detail under the heading "Federal Income
Taxation of AIMCO and AIMCO Stockholders -- General."
If we fail to qualify as a REIT, we would not be allowed a deduction for
distributions to shareholders in computing our taxable income and we would be
subject to Federal income tax at regular corporate rates. We also could be
subject to the Federal alternative minimum tax. Unless we are entitled to relief
under the tax law, we could not elect to be taxed as a REIT for four years
following the year during which we were disqualified. Therefore, if we lose our
REIT status, the funds available for payment to our investors would be reduced
substantially for each of the years involved. See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- General -- Failure to Qualify." Also, if we fail
to qualify as a REIT, (i) we would be obligated to repurchase 750,000 shares of
our preferred stock at a price of $105 per share, plus accrued and unpaid
dividends to the date of repurchase, and (ii) we would be in default under our
primary credit facilities and certain other loan documents. See "Federal Income
Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify."
For example, we will qualify as a REIT only if, as of the close of any year
in which we acquire a corporation that is a C Corporation (a corporation that
does not qualify for taxation as a REIT, such as Insignia), we have no "earnings
and profits" acquired from such C Corporation. In the Insignia merger, we
succeeded to the earnings and profits of Insignia and, therefore, must
distribute such earnings and profits effective on or before December 31, 1998.
Insignia has retained independent certified public accountants to determine
Insignia's earnings and profits through the effective time of the Insignia
merger for purposes of this requirement. The determination of the independent
certified public accountants will be based upon Insignia's tax returns as filed
with the IRS and other assumptions and qualifications set forth in the reports
issued by such accountants. Any adjustments to Insignia's income for taxable
years ending on or before the closing of the Insignia merger, including as a
result of an examination of its returns by the IRS and the receipt of certain
indemnity or other payments could affect the calculation of Insignia's earnings
and profits. Furthermore, the determination of earnings and profits requires the
resolution of certain technical tax issues with respect to which there is no
authority directly on point and, consequently, the proper treatment of these
issues for earnings and profits purposes is not free from doubt. There can be no
assurance that the IRS will not examine the tax returns of Insignia and propose
adjustments to increase its taxable income and therefore its earnings and
profits. In this regard, the IRS can consider all taxable years of Insignia as
open for review for purposes of determining the amount of such earnings and
profits. Additionally, if the $50 million dividend required to be paid on the
AIMCO preferred stock issued in the Insignia merger is not treated as a dividend
under the Internal Revenue Code, we may, depending upon the amount of other
distributions made by us subsequent to the Insignia merger, fail to distribute
an amount equal to Insignia's earnings and profits. Our failure to distribute an
amount equal to such earnings and profits effective on or before December 31,
1998, would result in our failure to qualify as a REIT.
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Effect of Distribution Requirements. As a REIT, we are subject to annual
distribution requirements, which limit the amount of cash we have available for
other business purposes, including amounts to fund our growth. See "Federal
Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution
Requirements."
Possible Legislative or Other Actions Affecting REITs. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the tax law could adversely affect our investors. It cannot be predicted
whether, when, in what forms, or with what effective dates, the tax laws
applicable to us or our investors will be changed.
Other Tax Liabilities. Even if we qualify as a REIT, we and our
subsidiaries may be subject to certain Federal, state and local taxes on our
income and property that could reduce operating cash flow.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
Our Charter limits ownership of our common stock by any single shareholder
to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and Mr. Considine). The Charter also prohibits
anyone from buying shares if the purchase would result in us losing our REIT
status. This could happen if a share transaction results in fewer than 100
persons owning all of our shares or in five or fewer persons, applying certain
broad attribution rules of the Internal Revenue Code, owning 50% or more of our
shares. If you or anyone else acquires shares in excess of the ownership limit
or in violation of the ownership requirements of the Internal Revenue Code for
REITs:
- the transfer will be considered null and void;
- we will not reflect the transaction on our books;
- we may institute legal action to enjoin the transaction;
- we may demand repayment of any dividends received by the affected person
on those shares;
- we may redeem the shares at their then current market price;
- the affected person will not have any voting rights for those shares; and
- the shares (and all voting and dividend rights of the shares) will be
held in trust for the benefit of one or more charitable organizations
designated by us.
We may purchase the shares held in trust at a price equal to the lesser of
the price paid by the transferee of the shares or the then current market price.
If the trust transfers any of the shares, the affected person will receive the
lesser of the price he paid for the shares or the then current market price. An
individual who acquires shares that violate the above rules bears the risk that:
- he may lose control over the power to dispose of the shares;
- he may not recognize profit from the sale of such shares if the market
price of the shares increases; and
- he may be required to recognize a loss from the sale of such shares if
the market price decreases.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO ACQUIRE
CONTROL OF THE COMPANY
Ownership Limit. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our Board of Directors.
Preferred Stock. Our Charter authorizes our Board of Directors to issue up
to 510,750,000 shares of capital stock. As of October 1, 1998, 486,027,500
shares were classified as Class A Common Stock, 262,500 shares were classified
as Class B Common Stock and 24,460,000 were classified as preferred stock. Under
the Charter, our Board of Directors has the authority to classify and reclassify
any of our unissued shares of capital stock into shares of preferred stock with
such preferences, rights, powers and restrictions as the Board of
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Directors may determine. The authorization and issuance of preferred stock could
have the effect of delaying or preventing someone from taking control of us,
even if a change in control were in our shareholders' best interests.
Maryland Business Statutes. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our shareholders' best interests. The
Maryland General Corporation Law restricts mergers and other business
combination transactions between us and any person who acquires beneficial
ownership of shares of our stock representing 10% or more of the voting power
without our Board of Directors' prior approval. Any such business combination
transaction could not be completed until five years after the person acquired
such voting power, and only with the approval of shareholders representing 80%
of all votes entitled to be cast and 66% of the votes entitled to be cast,
excluding the interested shareholder. Maryland law also provides that a person
who acquires shares of our stock that represent 20% or more of the voting power
in electing directors will have no voting rights unless approved by a vote of
two-thirds of the shares eligible to vote.
RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS
We refer to interests in the AIMCO Operating Partnership as "OP Units." The
Partnership Common Units are referred to as "Common OP Units" and the
Partnership Preferred Units are referred to as "Preferred OP Units." The
agreement of limited partnership of the AIMCO Operating Partnership is referred
to as the "AIMCO Operating Partnership Agreement."
Restrictions on Transferability of OP Units. There is no public market for
our OP Units. In addition, our partnership agreement restricts the
transferability of OP Units. Until the expiration of a one year holding period,
subject to certain exceptions, investors may not transfer OP Units without the
consent of the general partner of the AIMCO Operating Partnership. Thereafter
investors may transfer such OP Units subject to the satisfaction of certain
conditions, including the general partner's right of first refusal. See
"Description of OP Units -- Transfers and Withdrawals." We have no plans to list
our OP Units on a securities exchange. It is unlikely that any person will make
a market in our OP Units, or that an active market for our OP Units will
develop. If a market for our OP Units develops and our OP Units are considered
"readily tradable" on a "secondary market (or the substantial equivalent
thereof)," the AIMCO Operating Partnership would be classified as a publicly
traded partnership for federal income tax purposes. See "-- Tax Treatment is
Dependent on Partnership Status; Publicly Traded Partnership Risks."
Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership
Performance. Although we make quarterly distributions on our OP Units, there can
be no assurance regarding the amounts of available cash that the AIMCO Operating
Partnership will generate or the portion that the general partner will choose to
distribute. The actual amounts of available cash will depend upon numerous
factors, including profitability of operations, required principal and interest
payments on our debt, the cost of acquisitions (including related debt service
payments), our issuance of debt and equity securities, fluctuations in working
capital, capital expenditures, adjustments in reserves, prevailing economic
conditions and financial, business and other factors, some of which may be
beyond the our control. Cash distributions are dependent primarily on cash flow,
including from reserves, and not on profitability, which is affected by non-cash
items. Therefore, cash distributions may be made during periods when the we
record losses and may not be made during periods when we record profits. We make
quarterly distributions to holders of Common OP Units (on a per unit basis) that
generally are equal to the dividends paid on the Class A Common Stock (on a per
share basis). However, such distributions will not necessarily continue to be
equal to such dividends.
Our partnership agreement gives our general partner discretion in
establishing reserves for the proper conduct of the partnership's business that
will affect the amount of available cash. We are required to make reserves for
the future payment of principal and interest under our credit facilities and
other indebtedness. In addition, our credit facilities limit our ability to
distribute cash to holders of our OP Units. As a result of these and other
factors, there can be no assurance regarding our actual levels of cash
distributions on our OP Units,
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and our ability to distribute cash may be limited during the existence of any
events of default under any of our debt instruments.
The AIMCO GP Manages and Operates the AIMCO Operating Partnership; OP
Unitholders Have Limited Voting Rights. The AIMCO GP manages and operates the
AIMCO Operating Partnership. Unlike the holders of common stock in a
corporation, OP Unitholders have only limited voting rights on matters affecting
the AIMCO Operating Partnership's business. OP Unitholders have no right to
elect the AIMCO GP on an annual or other continuing basis, and the AIMCO GP may
not be removed by OP Unitholders. As a result, OP Unitholders have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of the AIMCO Operating Partnership.
We May Issue Additional Partnership Interests, Diluting OP Unitholders'
Interests. We may issue an unlimited number of additional OP Units or other
limited partner interests of the AIMCO Operating Partnership for such
consideration and on such terms as may be established by the AIMCO GP in its
sole discretion, in most cases, without the approval of OP Unitholders. The
effect of any such issuance may be to dilute the interests of OP Unitholders in
distributions by the AIMCO Operating Partnership.
OP Unitholders May Not Have Limited Liability in Certain Circumstances. The
limitations on the liability of limited partners for the obligations of a
limited partnership have not been clearly established in some states. If it were
determined that the AIMCO Operating Partnership had been conducting business in
any state without compliance with the applicable limited partnership statute, or
that the right or the exercise of the right by the OP Unitholders as a group to
make certain amendments to the AIMCO Operating Partnership Agreement or to take
other action pursuant to the AIMCO Operating Partnership Agreement constituted
participation in the "control" of the AIMCO Operating Partnership's business,
then an OP Unitholder could be held liable under certain circumstances for the
AIMCO Operating Partnership's obligations to the same extent as the AIMCO GP.
Conflicts of Interest and Fiduciary Responsibility. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the AIMCO GP and its affiliates, on the one hand, and the AIMCO
Operating Partnership or any partner thereof, on the other. The directors and
officers of the AIMCO GP have fiduciary duties to manage the AIMCO GP in a
manner beneficial to AIMCO, as the sole stockholder of the AIMCO GP. At the same
time, the AIMCO GP, as general partner, has fiduciary duties to manage the AIMCO
Operating Partnership in a manner beneficial to the AIMCO Operating Partnership
and its partners. The duties of the AIMCO GP, as general partner, to the AIMCO
Operating Partnership and its partners, therefore, may come into conflict with
the duties of the directors and officers of the AIMCO GP to its sole
stockholder, AIMCO. Such conflicts of interest might arise in the following
situations, among others:
- Decisions of the AIMCO GP with respect to the amount and timing of cash
expenditures, borrowings, issuances of additional interests and reserves
in any quarter will affect whether or the extent to which there is
available cash to make distributions in a given quarter.
- Under the terms of its partnership agreement, the AIMCO Operating
Partnership will reimburse the AIMCO GP and its affiliates for costs
incurred in managing and operating the AIMCO Operating Partnership,
including compensation of officers and employees.
- Whenever possible, the AIMCO GP seeks to limit the AIMCO Operating
Partnership's liability under contractual arrangements to all or
particular assets of the AIMCO Operating Partnership, with the other
party thereto to have no recourse against the AIMCO GP or its assets.
- Any agreements between the AIMCO Operating Partnership and the AIMCO GP
and its affiliates will not grant to the OP Unitholders, separate and
apart from the AIMCO Operating Partnership, the right to enforce the
obligations of the AIMCO GP and such affiliates in favor of the AIMCO
Operating Partnership. Therefore, the AIMCO GP, in its capacity as the
general partner of the AIMCO Operating Partnership, will be primarily
responsible for enforcing such obligations.
9
<PAGE> 118
- Under the terms of the AIMCO Operating Partnership Agreement, the AIMCO
GP is not restricted from causing the AIMCO Operating Partnership to pay
the AIMCO GP or its affiliates for any services rendered on terms that
are fair and reasonable to the AIMCO Operating Partnership or entering
into additional contractual arrangements with any of such entities on
behalf of the AIMCO Operating Partnership. Neither the AIMCO Operating
Partnership Agreement nor any of the other agreements, contracts and
arrangements between the AIMCO Operating Partnership, on the one hand,
and the AIMCO GP and its affiliates, on the other, are or will be the
result of arms-length negotiations.
Unless otherwise provided for in the relevant partnership agreement,
Delaware law generally requires a general partner of a Delaware limited
partnership to adhere to fiduciary duty standards under which it owes its
limited partners the highest duties of good faith, fairness and loyalty and
which generally prohibit such general partner from taking any action or engaging
in any transaction as to which it has a conflict of interest. The AIMCO
Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into,
on behalf of the AIMCO Operating Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various affiliates of
the AIMCO Operating Partnership and the AIMCO GP, on such terms as the AIMCO GP,
in its sole and absolute discretion, believes are advisable. The latitude given
in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving
conflicts of interest may significantly limit the ability of an OP Unitholder to
challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP
believes, however, that such latitude is necessary and appropriate to enable it
to serve as the general partner of the AIMCO Operating Partnership without undue
risk of liability.
The AIMCO Operating Partnership Agreement expressly limits the liability of
the AIMCO GP by providing that the AIMCO GP, and its officers and directors will
not be liable or accountable in damages to the AIMCO Operating Partnership, the
limited partners or assignees for errors in judgment or mistakes of fact or law
or of any act or omission if the AIMCO GP or such director or officer acted in
good faith. In addition, the AIMCO Operating Partnership is required to
indemnify the AIMCO GP, its affiliates and their respective officers, directors,
employees and agents to the fullest extent permitted by applicable law, against
any and all losses, claims, damages, liabilities, joint or several, expenses,
judgments, fines and other actions incurred by the AIMCO GP or such other
persons, provided that the AIMCO Operating Partnership will not indemnify for
(i) willful misconduct or a knowing violation of the law or (ii) for any
transaction for which such person received an improper personal benefit in
violation or breach of any provision of the AIMCO Operating Partnership
Agreement.
The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
resolved in a court of law, and the AIMCO GP has not obtained an opinion of
counsel covering the provisions set forth in the AIMCO Operating Partnership
Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP
that would be in effect under common law were it not for the AIMCO Operating
Partnership Agreement.
Certain Tax Risks Associated with an Investment in the OP Units. For a
general discussion of certain federal income tax consequences resulting from the
acquisition, holding, exchanging, and otherwise disposing of OP Units, see
"Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders."
Tax Treatment is Dependent on Partnership Status; Publicly Traded
Partnership Risks. The availability to an OP Unitholder of the federal income
tax benefits of an investment in the AIMCO Operating Partnership depends on the
classification of the AIMCO Operating Partnership as a partnership for federal
income tax purposes. In the opinion of our legal counsel, which opinion is based
upon certain assumptions and representations by the AIMCO Operating Partnership
and on opinions of local counsel, with respect to matters of local law, the
AIMCO Operating Partnership will be classified as a partnership for federal
income tax purposes. The opinion is expressed as of its date and our counsel has
no obligation to advise OP Unitholders of any subsequent change in the matters
stated, represented or assumed or any subsequent change in the applicable law.
No advance ruling has been or will be sought from the IRS as to the
classification of the AIMCO Operating Partnership as a partnership. An opinion
of counsel is not binding on the IRS, and no assurance can be given that the IRS
will not challenge the status of the AIMCO Operating Partnership as a
partnership.
10
<PAGE> 119
If a market for the OP Units develops and the OP Units are considered
"readily tradable" on a "secondary market (or the substantial equivalent
thereof)," the AIMCO Operating Partnership would be classified as a publicly
traded partnership. We believe and intend to take the position that the AIMCO
Operating Partnership should not be classified as a publicly traded partnership
because (i) our OP Units are not traded on an established securities market and
(ii) our OP Units should not be considered readily tradable on a secondary
market or the substantial equivalent thereof. The determination of whether
interests in a partnership are readily tradable on a secondary market or the
substantial equivalent thereof, however, depends on various facts and
circumstances (including facts that are not within the control of the AIMCO
Operating Partnership). Although the Treasury regulations promulgated by the
U.S. Treasury Department under the Internal Revenue Code (the "Treasury
Regulations") and an IRS pronouncement provide limited safe harbors, which, if
satisfied, will prevent a partnership's interests from being treated as readily
tradable on a secondary market or the substantial equivalent thereof, the AIMCO
Operating Partnership may not have satisfied any of these safe harbors in its
previous tax years. In addition, because the AIMCO Operating Partnership's
ability to satisfy a safe harbor may involve facts that are not within its
control, it is impossible to predict whether the AIMCO Operating Partnership
will satisfy a safe harbor in future tax years. Such safe harbors are not
intended to be substantive rules for the determination of whether partnership
interests are readily tradable on a secondary market or the substantial
equivalent thereof, and consequently, the failure to meet these safe harbors
will not necessarily cause the AIMCO Operating Partnership to be treated as a
publicly traded partnership. No assurance can be given, however, that the IRS
will not assert that partnerships such as the AIMCO Operating Partnership
constitute publicly traded partnerships, or that facts and circumstances will
not develop which could result in the AIMCO Operating Partnership being treated
as a publicly traded partnership.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, real property rents (as defined
by section 856 of the Internal Revenue Code) and gain from the sale or
disposition of real property. We believe that more than 90% of the gross income
of the AIMCO Operating Partnership consists of qualifying income and we expect
that more than 90% of its gross income in future tax years will consist of
qualifying income. In such event, even if the AIMCO Operating Partnership were
characterized as a publicly traded partnership, it would not be taxable as a
corporation. If the AIMCO Operating Partnership were characterized as a publicly
traded partnership, however, each OP Unitholder would be subject to special
rules under section 469 of the Internal Revenue Code. See "Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders -- Limitations on
Deductibility of Losses; "Passive Activity Loss" Limitation." No assurance can
be given that the actual results of the AIMCO Operating Partnership's operations
for any one taxable year will enable it to satisfy the qualifying income
exception.
If the AIMCO Operating Partnership were characterized as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. Thus, the AIMCO
Operating Partnership would be subject to federal tax (and possibly state and
local taxes) on its net income, determined without reduction for any
distributions made to the OP Unitholders, at regular federal corporate income
tax rates, thereby reducing the amount of any cash available for distribution to
the OP Unitholders, which reduction could also materially and adversely impact
the liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and credit would not be
passed through to the OP Unitholders and the OP Unitholders would not be subject
to tax on the income earned by the AIMCO Operating Partnership. Distributions
received by an OP Unitholder from the AIMCO Operating Partnership, however,
would be treated as dividend income for federal income tax purposes, subject to
tax as ordinary income to the extent of current and accumulated earnings and
profits of the AIMCO Operating Partnership, and the excess, if any, as a
nontaxable return of capital to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest (without taking into account
partnership liabilities), and thereafter as gain from the sale of a capital
asset. Characterization of the AIMCO Operating Partnership as an association or
publicly traded partnership taxable as a corporation would also result in the
termination of AIMCO's status as a REIT for
11
<PAGE> 120
federal income tax purposes which would have a material adverse impact on AIMCO.
See "Federal Income Taxation of the AIMCO Operating Partnership and OP
Unitholders -- Partnership Status." No assurances can be given that the IRS
would not challenge the status of the AIMCO Operating Partnership as a
"partnership" which is not "publicly traded" for federal income tax purposes or
that a court would not reach a result contrary to such positions. Accordingly,
each prospective investor is urged to consult his tax advisor regarding the
classification and treatment of the AIMCO Operating Partnership as a
"partnership" for federal income tax purposes.
Consequences of Exchanging Property for OP Units. In general, no gain or
loss will be recognized for federal income tax purposes by a person contributing
property to the AIMCO Operating Partnership (the "Contributing Partner") in
exchange for OP Units, and the Contributing Partner will take a tax basis in the
OP Unit received equal to his adjusted tax basis in the contributed property.
Notwithstanding this general rule of nonrecognition, a Contributing Partner may
recognize a gain where the property transferred is subject to liabilities, or
the AIMCO Operating Partnership assumes liabilities in connection with the
transfer of property, and the amount of such liabilities exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to such person as
determined immediately after the transfer. Such excess is treated as a deemed
distribution of cash to the Contributing Partner from the AIMCO Operating
Partnership which, in turn, is treated as a nontaxable return of capital to the
extent of the Contributing Partner's adjusted tax basis in his OP Unit and
thereafter as gain from the sale of such partnership interest. If the
Contributing Partner transfers property to the AIMCO Operating Partnership and
the adjusted tax basis of the property differs from its fair market value, then
AIMCO Operating Partnership tax items must be allocated, for federal income tax
purposes, in a manner such that the Contributing Partner is charged with the
unrealized gain, or benefits from the unrealized loss, associated with the
property at the time of the contribution. See "Federal Income Taxation of the
AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon
Contribution of Property to the AIMCO Operating Partnership."
There are a variety of transactions that the AIMCO Operating Partnership
may in its sole discretion undertake following such contribution with respect to
the contributed property or the debt securing such property which could cause
the Contributing Partner to recognize taxable gain, even though little or no
cash is distributable to him as a result thereof. Such transactions include but
are not limited to (i) the sale of a particular property, which could result in
an allocation of gain only to those OP Unitholders who received OP Units for
such property (even if cash attributable to sale proceeds were distributed
proportionately to all OP Unitholders); and (ii) a reduction in the nonrecourse
debt allocable to property (either because such debt becomes a recourse
liability or is paid off with cash flow, new equity, or proceeds of debt secured
by other property of the AIMCO Operating Partnership), which would result in a
deemed distribution of money to the OP Unitholders who received OP Units for
such property as well as to the other OP Unitholders. See "Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
and "Federal Income Taxation of the AIMCO Operating Partnership and OP
Unitholders -- Cash Distributions." The AIMCO Operating Partnership Agreement
grants the AIMCO GP broad authority to undertake such transactions and does not
grant the OP Unitholders affected by these actions any rights to prevent the
AIMCO GP from taking such actions. Even if the AIMCO GP does not intend to sell
or otherwise dispose of contributed property or to reduce the debt, if any,
securing such property within any specified time period after the Contributing
Partner transfers such property to the AIMCO Operating Partnership, it is
possible that future economic, market, legal, tax or other considerations may
cause the AIMCO Operating Partnership to dispose of the contributed property or
to reduce its debt. In this regard, the AIMCO Operating Partnership Agreement
provides that the AIMCO GP, while acting in its capacity as general partner of
the AIMCO Operating Partnership, may, but is not required to, take into account
the tax consequences to the OP Unitholders of its actions in such capacity. The
AIMCO GP intends to make decisions in its capacity as general partner of the
AIMCO Operating Partnership so as to maximize the profitability of the AIMCO
Operating Partnership as a whole, independent of the tax effects on individual
OP Unitholders.
Tax Liability Exceeding Cash Distribution. An OP Unitholder will be
required to pay federal income tax and, in certain cases, state and local income
taxes, on his allocable share of the AIMCO Operating
12
<PAGE> 121
Partnership's income, even if he receives no cash distributions from the AIMCO
Operating Partnership. No assurance can be given that an OP Unitholder will
receive cash distributions equal to his allocable share of taxable income from
the AIMCO Operating Partnership or even the tax liability to him resulting from
that income. Further, upon the sale of his OP Units, an OP Unitholder may incur
a tax liability in excess of the amount of cash received. See "Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders -- Taxation of OP
Unitholders of AIMCO Operating Partnership," and "Federal Income Taxation of the
AIMCO Operating Partnership and OP Unitholders -- Sale, Redemption, or Exchange
of OP Units."
Deductibility of Losses. An OP Unitholder's ability to use his allocable
share of losses, if any, from the AIMCO Operating Partnership at the end of the
taxable year in which the loss is incurred may be limited by certain provisions
of the Internal Revenue Code. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders -- Limitations on Deductibility of
Losses."
Potential Audits. The AIMCO Operating Partnership's tax return may be
audited, and any such audit could result in an audit of an OP Unitholder's tax
return as well as increased liabilities for taxes because of adjustments
resulting from the audit. No assurance can be given that the AIMCO Operating
Partnership will not be audited by the IRS or various state authorities or that
tax adjustments will not be made. Any adjustments in the AIMCO Operating
Partnership's tax return will lead to adjustments in an OP Unitholder's tax
return and may lead to audits of an OP Unitholder's tax return and adjustments
of items unrelated to the AIMCO Operating Partnership. Each OP Unitholder would
bear the cost of any expenses incurred in connection with an examination of such
OP Unitholder's tax return. See "Federal Income Taxation of the AIMCO Operating
Partnership and OP Unitholders -- Information Returns and Audit Procedures."
State, Local and Other Tax Considerations. In addition to federal income
taxes, the AIMCO Operating Partnership and its OP Unitholders may be subject to
state, local and foreign taxation in various jurisdictions in which the AIMCO
Operating Partnership does business, owns property or resides. See "Other Tax
Consequences -- State, Local and Foreign Taxes."
Tax Gain or Loss on Disposition of OP Units. An OP Unitholder who sells OP
Units will recognize gain or loss equal to the difference between the amount
realized (including his share of AIMCO Operating Partnership nonrecourse
liabilities) and his adjusted tax basis in such OP Units. Thus, prior AIMCO
Operating Partnership distributions in excess of cumulative net taxable income
in respect of an OP Unit which decreased an OP Unitholder's tax basis in such OP
Unit will, in effect, become taxable income if the OP Unit is sold at a price
greater than the OP Unitholder's tax basis in such OP Units, even if the price
is less than his original cost. A portion of the amount realized (whether or not
representing gain) may be ordinary income.
13
<PAGE> 122
SECURITIES COVERED BY THIS PROSPECTUS
The securities covered by this Prospectus (the "Securities") may be offered
and issued from time to time by AIMCO or the AIMCO Operating Partnership in
connection with acquisitions of businesses, properties, securities or other
assets. In addition, AIMCO may issue (i) shares of its Class A Common Stock, par
value $0.01 per share ("Class A Common Stock") covered hereby upon conversion of
shares its Preferred Stock, par value $0.01 per share ("Preferred Stock"), (ii)
shares of its Preferred Stock covered hereby and shares of its Class A Common
Stock covered hereby, in each case in exchange for Partnership Preferred Units
of the AIMCO Operating Partnership ("Preferred OP Units") tendered for
redemption pursuant to the AIMCO Operating Partnership Agreement and (iii)
shares of its Class A Common Stock covered hereby in exchange for Partnership
Common Units of the AIMCO Operating Partnership ("Common OP Units" and together
with the Preferred OP Units, the "OP Units") tendered for redemption pursuant to
the AIMCO Operating Partnership Agreement.
It is expected that the terms of acquisitions involving the issuance of the
Securities will be determined by direct negotiations with owners or controlling
persons of the business, properties, securities or other assets to be acquired
or through exchange offers. It is expected that any shares of Class A Common
Stock or Common OP Units issued will be valued at prices based on or related to
market prices for the Class A Common Stock at or near the time the terms of such
acquisition are established or at or near the time such Securities are
delivered, or based on average market prices for periods ending at or near such
times. No underwriting discounts or commissions will be paid, although brokers'
or finders' fees may be paid from time to time with respect to specific
acquisitions, and AIMCO or the AIMCO Operating Partnership may issue the
Securities in full or partial payment of such fees. Any person receiving such
fees may be deemed to be an "underwriter," within the meaning of the Securities
Act.
This Prospectus has also been prepared for use by the persons who may
receive from AIMCO or the AIMCO Operating Partnership Securities covered by the
Registration Statement in acquisitions and who may be entitled to offer such
Securities under circumstances requiring the use of a Prospectus (such persons
being referred to under this caption as "Securityholders"); provided, however,
that no Securityholder will be authorized to use this Prospectus for any offer
of such Security without first obtaining the consent of AIMCO and the AIMCO
Operating Partnership. AIMCO and the AIMCO Operating Partnership may consent to
the use of this Prospectus for a limited period of time by the Securityholders
and subject to limitations and conditions which may be varied by agreement
between AIMCO and the AIMCO Operating Partnership and the Securityholders.
Resales of such Securities may be made on the NYSE or such other exchange on
which the Securities may be listed, in the over-the-counter market, in private
transactions or pursuant to underwriting agreements.
Agreements with Securityholders permitting use of this Prospectus may
provide that any such offering be effected in an orderly manner through
securities dealers, acting as broker or dealer, selected by AIMCO and the AIMCO
Operating Partnership; that Securityholders enter into custody agreements with
one or more banks with respect to such shares; and that sales be made only by
one or more of the methods described in this Prospectus, as appropriately
supplemented or amended when required. The Securityholders may be deemed to be
underwriters within the meaning of the Securities Act.
When resales are to be made through a broker or dealer selected by AIMCO
and the AIMCO Operating Partnership, it is anticipated that a member firm of the
NYSE may be engaged to act as the Securityholders' agent in the sale of shares
by such Securityholders. The member firm will be entitled to commissions
(including negotiated commissions to the extent permissible). Sales of shares by
the member firm may be made on the NYSE or other exchange from time to time at
prices related to prices then prevailing. Any such sales may be by block trade.
Any such member firm may be deemed to be an underwriter within the meaning of
the Securities Act and any commissions earned by such member firm may be deemed
to be underwriting discounts and commissions under such act.
Upon AIMCO and the AIMCO Operating Partnership being notified by a
Securityholder that any block trade has taken place, a supplementary prospectus,
if required, will be filed pursuant to Rule 424 under the Securities Act,
disclosing the name of the member firm, the number of shares involved, the price
at which
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<PAGE> 123
such shares were sold by such Securityholder, and the commissions to be paid by
such Securityholder to such member firm.
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who received Securities for whom AIMCO and the
AIMCO Operating Partnership have consented to the use of this Prospectus in
connection with resales of such Securities.
In addition to the Securities offered hereby, AIMCO and the AIMCO Operating
Partnership may from time to time issue additional Securities through public
offerings or private placements. AIMCO and the AIMCO Operating Partnership may
make such future issuances of Securities in connection with its acquisition of
other businesses, properties, securities or other assets in business combination
transactions or for other purposes.
15
<PAGE> 124
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
COMPANY COMPANY
THE COMPANY PREDECESSORS(1) PRO FORMA(6)
------------------------------------------------ ------------------- -------------------
FOR THE SIX FOR THE FOR THE FOR THE
MONTHS FOR THE YEARS PERIOD PERIOD FOR THE SIX FOR THE
ENDED ENDED JAN. 10, JAN. 1, YEAR MONTHS YEAR
JUNE 30, DECEMBER 31, 1994 TO 1994 TO ENDED ENDED ENDED
------------- --------------------- DEC. 31, JULY 28, DEC. 31, JUNE 30, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(3) 1993 1998 1997
----- ----- ----- ----- ----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earning to fixed
charges(2)....................... 2.0:1 1.6:1 2.3:1 1.6:1 2.1:1 5.8:1 N/A 1.2:1 1.6:1 2.0:1
Ratio of earnings to combined fixed
charges and preferred stock
dividends(4)(5).................. 1.6:1 1.6:1 2.2:1 1.6:1 1.5:1 2.0:1 N/A 1.2:1 1.3:1 1.5:1
</TABLE>
- ---------------
(1) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of Class A Common Stock. On such date, AIMCO and Property Asset
Management, L.L.C., and its affiliated companies and PDI Realty Enterprises,
Inc. (collectively, the "Company Predecessors") engaged in a business
combination and consummated a series of related transactions which enabled
the Company to continue and to expand the property management and related
businesses of the Company Predecessors.
(2) The ratio of earnings to fixed charges for the Company was computed by
dividing earnings by fixed charges. For this purpose, "earnings" consists of
income before minority interests (which includes equity in earnings of
unconsolidated subsidiaries and partnerships only to the extent of dividends
and distributions received) plus fixed charges (other than any interest
which has been capitalized); and "fixed charges" consists of interest
expense (including amortization of loan costs) and interest which has been
capitalized. The ratio of earnings to fixed charges for the Company
Predecessors was computed by dividing earnings by fixed charges. For this
purpose, "earnings" consists of income (loss) before extraordinary items and
income taxes plus fixed charges and "fixed charges" consists of interest
expense (including amortization of loan costs).
(3) The earnings of the Company Predecessors for the period from January 1, 1994
to July 28, 1994 were inadequate to cover fixed charges by $1,463,000.
(4) The ratio of earnings to combined fixed charges and preferred stock
dividends for the Company was computed by dividing earnings by the total of
fixed charges and preferred stock dividends. For this purpose, "earnings"
consists of income before minority interests (which includes equity in
earnings of unconsolidated subsidiaries and partnerships only to the extent
of dividends and distributions received) plus fixed charges (other than any
interest which has been capitalized); "fixed charges" consists of interest
expense (including amortization of loan costs) and interest which has been
capitalized; and "preferred stock dividends" consists of the amount of
pre-tax earnings that would be required to cover preferred stock dividend
requirements.
(5) The Company Predecessors did not have any shares of preferred stock
outstanding during the period from January 1, 1993 through July 28, 1994.
(6) Gives pro forma effect, as of the beginning of the period indicated, to
AIMCO's May 8, 1998 merger with Ambassador Apartments, Inc., AIMCO's October
1, 1998 merger with Insignia Financial Group, Inc. and certain other
transactions completed by AIMCO subsequent to December 31, 1997.
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<PAGE> 125
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial and operating
information for the Company. The Selected Historical Financial Data for the six
months ended June 30, 1998 and 1997 is based on unaudited financial statements
of AIMCO as included in AIMCO's Quarterly Report on Form 10-Q for the six months
ended June 30, 1998, incorporated by reference herein. Results for the quarter
ended June 30, 1998 are not necessarily indicative of the results to be expected
for a full year. The selected historical financial information for the years
ended December 31, 1997, 1996 and 1995 is based on the audited financial
statements of AIMCO incorporated by reference herein. The selected historical
financial information for the period January 10, 1994 (the date of AIMCO's
inception) through December 31, 1994 for AIMCO and for the period from January
1, 1994 through July 28, 1994 and for the year ended December 31, 1993 for the
Company Predecessors is based on the audited financial statements of AIMCO and
the Company Predecessors, respectively. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth in AIMCO's Annual Report on Form 10-K/A for
the year ended December 31, 1997 and in AIMCO's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 and the historical financial statements of
AIMCO and notes thereto incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY'S
THE COMPANY PREDECESSORS(a)
-------------------------------------------------------------------------- ------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FOR THE JAN. 10, JAN. 1, FOR THE
SIX MONTHS ENDED YEAR ENDED 1994 1994 YEAR
JUNE 30, DECEMBER 31, THROUGH THROUGH ENDED
----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(b) 1993
---------- ---------- ---------- -------- -------- ------------- ------------- --------
(RESTATED)(c) (RESTATED)(c)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY
OPERATIONS:
Rental and other property
revenues................ $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056
Property operating
expenses................ (59,643) (31,106) (76,168) (38,400) (30,150) (10,330) (2,263) (3,200)
Owned property management
expenses................ (4,713) (2,734) (6,620) (2,746) (2,276) (711) -- --
Depreciation.............. (34,289) (15,046) (37,741) (19,556) (15,038) (4,727) (1,151) (1,702)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income from Rental
Property Operations..... 62,619 30,779 72,477 39,814 27,483 9,126 2,391 3,154
---------- ---------- ---------- -------- -------- -------- ------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income.................. 9,562 5,605 13,937 8,367 8,132 3,217 6,533 8,069
Management and other
expenses................ (5,470) (2,643) (9,910) (5,352) (4,953) (2,047) (5,823) (6,414)
Corporate overhead
allocation.............. (196) (294) (588) (590) (581) -- -- --
Amortization of
Goodwill................ -- -- (948) (500) (428) -- -- --
Owner and seller
bonuses................. -- -- -- -- -- -- (204) (468)
Depreciation and
amortization............ (3) (161) (453) (218) (168) (150) (146) (204)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income from service
business................ 3,893 2,507 2,038 1,707 2,002 1,020 360 983
Minority interests in
service company
business................ (1) (2) (10) 10 (29) (14) -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Company's shares of income
from service company
business................ 3,892 2,505 2,028 1,717 1,973 1,006 360 983
---------- ---------- ---------- -------- -------- -------- ------- --------
General and administrative
expenses................ (4,103) (784) (5,396) (1,512) (1,804) (977) -- --
Interest income........... 11,350 1,341 8,676 523 658 123 -- --
Interest expense.......... (34,778) (20,604) (51,385) (24,802) (13,322) (1,576) (4,214) (3,510)
Minority interest in other
partnerships............ (516) (565) 1,008 (111) -- -- -- --
Equity in earnings of
other partnerships(d)... (4,681) (379) (1,798) -- -- -- -- --
Equity in earnings of
Unconsolidated
Subsidiaries(e)......... 5,609 (86) 4,636 -- -- -- -- --
Amortization of
Goodwill................ (3,394) (474) -- -- -- -- -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Income (loss) before gain
on disposition of
property, extraordinary
item, income taxes and
minority interest in
AIMCO Operating
Partnership............. 35,998 11,733 30,246 15,629 14,988 7,702 (1,463) 627
---------- ---------- ---------- -------- -------- -------- ------- --------
Gain on disposition of
property................ 2,526 -- 2,720 44 -- -- -- --
Extraordinary (loss) --
forgiveness of debt..... -- (269) (269) -- -- -- -- --
Provisions for income
taxes................... -- -- -- -- -- -- (36) (336)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income (loss) before
minority interest in
AIMCO Operating
Partnership............. 38,524 11,464 32,697 15,673 14,988 7,702 (1,499) 291
Minority interest in AIMCO
Operating Partnership... (3,262) (1,616) (4,064) (2,689) (1,613) (599) -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Net income (loss)......... $ 35,262 $ 9,848 $ 28,633 $ 12,984 $ 13,375 $ 7,143 $(1,499) $ 291
========== ========== ========== ======== ======== ======== ======= ========
</TABLE>
17
<PAGE> 126
<TABLE>
<CAPTION>
THE COMPANY'S
THE COMPANY PREDECESSORS(a)
-------------------------------------------------------------------------- ------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FOR THE JAN. 10, JAN. 1, FOR THE
SIX MONTHS ENDED YEAR ENDED 1994 1994 YEAR
JUNE 30, DECEMBER 31, THROUGH THROUGH ENDED
----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(b) 1993
---------- ---------- ---------- -------- -------- ------------- ------------- --------
(RESTATED)(c) (RESTATED)(c)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Real Estate, before
accumulated
depreciation............ $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $406,067 $47,500 $ 46,819
Real Estate, net of
accumulated
depreciation............ 2,287,309 945,969 1,503,922 745,145 448,425 392,368 32,270 33,701
Total assets.............. 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361 39,042 38,914
Total mortgages and notes
payable................. 1,314,475 644,457 808,503 522,146 268,692 141,315 40,873 41,893
Mandatory redeemable 1994
Cumulative Convertible
Senior Preferred
Stock................... -- -- -- -- -- 96,600 -- --
Stockholder's equity...... 1,394,394 388,477 1,045,300 215,749 169,032 140,319 (9,345) (7,556)
OTHER DATA:
Total owned properties
(end of period)......... 210 107 147 94 56 48 4 4
Total owned apartment
units (end of period)... 58,345 27,056 40,039 23,764 14,453 12,513 1,711 1,711
Equity Owned Properties... 74,318 88,690 83,431 -- -- -- -- --
Units under management
(end of
period)................. 68,248 70,213 69,587 19,045 19,594 20,758 29,343 28,422
Basic earnings per common
share................... $ 0.62 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A
Diluted earnings per
common share............ $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A
Distributions paid per
common share............ $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A N/A
Cash flows provided by
operating activities.... 5,838 25,035 73,032 38,806 25,911 16,825 2,678 2,203
Cash flows used in
investing activities.... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481) (924) (16,352)
Cash flows provided by
(used in) financing
activities.............. 107,063 91,450 668,549 60,129 30,145 176,800 (1,032) 14,114
Funds from
operations(f)........... $ 83,657 $ 28,441 $ 81,155 $ 35,185 $ 25,285 $ 9,391 N/A N/A
Weighted average number of
common shares and OP
Units outstanding(g).... 43,409 18,559 29,119 14,994 11,461 10,920 N/A N/A
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of Class A Common Stock and issued 966,000 shares of convertible
preferred stock and 513,514 unregistered shares of Class A Common Stock. On
such date, the Company and the Company Predecessors engaged in a business
combination and consummated a series of related transactions which enabled
the Company to continue and expand the property management and related
businesses of the Company Predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of Class A Common Stock were repurchased
by AIMCO in 1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO.
(c) In the second quarter of 1996, the Company reorganized its ownership of the
service company business. Prior to the 1996 reorganization, the Company
reported the service company business on the equity method. After the 1996
reorganization, the service company business was conducted by a limited
partnership controlled by the Company and was, therefore, consolidated. The
Company has restated the balance sheet as of December 31, 1995 and 1994,
and the statements of income and statements of cash flows for the year
ended December 31, 1995 and the period from January 10, 1994 through
December 31, 1994 to reflect the change. The restatement has no impact on
net income, but does increase third party and affiliate management and
other income, management and other expenses, amortization of management
company goodwill and depreciation of non-real estate assets. In the third
quarter of 1998, the Company reorganized its ownership of the service
company business so that it is now conducted by the management companies,
which are not consolidated.
(d) Represents the Company's share of earnings from 83,431 units in which the
Company purchased an equity interest from the NHP Real Estate Companies.
(e) Represents the Company's equity earnings in the unconsolidated
subsidiaries.
(f) The Company's management believes that the presentation of funds from
operations ("FFO"), when considered with the financial data determined in
accordance with generally accepted accounting principles ("GAAP"), provides
a useful measure of the Company's performance. However, FFO does not
represent cash flow and is not necessarily indicative of cash flow or
liquidity available to the Company, nor should it be considered as an
alternative to net income as an indicator of operating performance. The
Board of Governors of the National Association of Real Estate Investment
Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance
with GAAP, excluding gains and losses from debt restructuring and sales of
property, plus real estate related depreciation and amortization
18
<PAGE> 127
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. AIMCO calculates FFO
consistent with the NAREIT definition, adjusted for AIMCO's minority
interest in the AIMCO Operating Partnership, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. The Company's management believes
that presentation of FFO provides investors with industry-accepted
measurements which help facilitate an understanding of the Company's
ability to make required dividend payments, capital expenditures and
principal payments on its debt. There can be no assurance that AIMCO's
basis of computing FFO is comparable with that of other REITs.
The following is a reconciliation of income before minority interest in the
AIMCO Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS FOR THE PERIOD
ENDED YEAR ENDED JANUARY 10,
JUNE 30, DECEMBER 31, 1994 TO
----------------- --------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income before minority interest in
AIMCO
Operating Partnership.............. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property.... (2,526) -- (2,720) (44) -- --
Extraordinary item................. -- 269 269 -- -- --
Real estate depreciation, net of
minority interests............... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill........... 4,727 474 948 500 428 76
Equity in earnings of
Unconsolidated Subsidiaries:
Real estate depreciation......... -- 1,263 3,584 -- -- --
Amortization of management
contracts..................... 3,088 150 1,587 -- -- --
Deferred taxes................... 4,291 874 4,894 -- -- --
Equity in earnings of other
partnerships:
Real estate depreciation......... 9,131 697 6,280 -- -- --
Preferred stock dividends.......... (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations.............. $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
(g) Generally, after a one-year holding period, Common OP Units may be tendered
for redemption at the option of the holder and, upon tender, may be
acquired by AIMCO for shares of Class A Common Stock at an exchange ratio
of one share of Class A Common Stock for each Common OP Unit (subject to
adjustment).
19
<PAGE> 128
PER SHARE AND PER UNIT DATA
PER SHARE DATA
Set forth below are historical earnings per share of Class A Common Stock,
cash dividends per share of Class A Common Stock and book value per share of
Class A Common Stock data of AIMCO. The data set forth below should be read in
conjunction with the AIMCO audited financial statements and unaudited interim
financial statements, including the notes thereto, which are incorporated by
reference herein.
<TABLE>
<CAPTION>
AIMCO
-------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Basic earnings per weighted average share of Class A Common
Stock outstanding......................................... $ 0.62 $ 1.09
Diluted earnings per weighted average share of Class A
Common Stock outstanding.................................. $ 0.61 $ 1.08
Cash dividends per weighted average share of Class A Common
Stock outstanding......................................... $1.125 $ 1.85
Book value per share of Class A Common Stock outstanding.... $24.01 $22.51
</TABLE>
PER UNIT DATA
Set forth below are historical earnings per Common OP Unit, cash
distributions per Common OP Unit and book value per Common OP Unit. The data set
forth below should be read in conjunction with the AIMCO Operating Partnership
audited financial statements and unaudited interim financial statements,
including the notes thereto, which are incorporated by reference herein.
<TABLE>
<CAPTION>
AIMCO OPERATING PARTNERSHIP
----------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Basic earnings per weighted average Common OP Unit
outstanding............................................... $ 0.61 $ 1.09
Diluted earnings per weighted average Common OP Unit
outstanding............................................... $ 0.61 $ 1.08
Cash distributions per Common OP Unit outstanding........... $1.125 $ 1.85
Book value per Common OP Unit outstanding................... $23.47 $22.33
</TABLE>
20
<PAGE> 129
STOCK PRICES, DIVIDENDS AND DISTRIBUTIONS
The Class A Common Stock is listed and traded on the NYSE under the symbol
"AIV." The following table sets forth, for the periods indicated, the high and
low reported sales prices per share of Class A Common Stock, as reported on the
NYSE Composite Tape, dividends per share declared on Class A Common Stock for
the same periods, and distributions per unit declared on Common OP Units for the
same periods. Common OP Units are subject to restrictions on transfer, and there
is no trading market for the Common OP Units.
<TABLE>
<CAPTION>
COMMON
CLASS A COMMON STOCK OP UNITS
-------------------------- ------------
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- ---- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5, 1998)... $37 1/8 $34 3/4 $ -- $
Third Quarter.............................. 41 30 15/16 -- --
Second Quarter............................. 38 7/8 36 1/2 0.5625 0.5625
First Quarter.............................. 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter............................. 38 32 0.5625 0.5625
Third Quarter.............................. 36 3/16 28 1/8 0.4625 0.4625
Second Quarter............................. 29 3/4 26 0.4625 0.4625
First Quarter.............................. 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter............................. 28 3/8 21 1/8 0.4625 0.4625
Third Quarter.............................. 22 18 3/8 0.4250 0.4250
Second Quarter............................. 21 18 3/8 0.4250 0.4250
First Quarter.............................. 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Because AIMCO has elected to be taxed for federal income tax purposes as a
REIT, it is required to distribute annually to its stockholders at least 95% of
its "REIT taxable income," which, as defined by the Code and the Treasury
Regulations, is generally equivalent to net taxable ordinary income. AIMCO
measures its economic profitability and pays regular dividends to its
stockholders based on its operating results during the relevant period. The
future payment of dividends by AIMCO will be at the discretion of the AIMCO
Board of Directors and will depend on numerous factors, including financial
condition, capital requirements, the annual distribution requirements under the
provisions of the Code applicable to REITs and such other factors the AIMCO
Board of Directors deems relevant. See "Business of the Company -- Operating and
Financial Strategies; Dividend Policy."
On January 22, 1998, the AIMCO Board of Directors voted to increase the
annual dividend rate on the Class A Common Stock to $2.25 per share. Such
dividend increase was effective commencing with the dividend with respect to the
fourth quarter of 1997 paid on February 13, 1998 and is subject to the factors
described above, including AIMCO's future results of operations. Historically,
the AIMCO Operating Partnership has made quarterly distributions to holders of
Common OP Units (on a per unit basis) that are equal to the dividends paid on
the Class A Common Stock (on a per share basis). Although this is expected to be
true in the future, there can be no assurance that distributions on the Common
OP Units will always be equal to the dividends on the Class A Common Stock. See
"Risk Factors -- Risks Associated With an Investment in OP Units."
21
<PAGE> 130
BUSINESS OF THE COMPANY
The Company is engaged in the ownership, acquisition, development,
expansion and management of multi-family apartment properties. As of October 1,
1998, the Company owned or managed 396,090 apartment units in 2,303 properties
located in 49 states, the District of Columbia and Puerto Rico. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, we were the largest owner and
manager of multifamily apartment properties in the United States. The "AIMCO
Properties" include:
- "Owned Properties" -- properties that the Company owns or controls;
- "Equity Properties" -- properties in which the Company owns a
non-controlling (usually less than 30%) interest; and
- "Managed Properties" -- properties that the Company manages for third
parties and affiliates.
As of October 1, 1998, the Company had 209 Owned Properties with 58,495
units, 1,335 Equity Properties with 239,789 units and 759 Managed Properties
with 97,716 units. The Company manages all of the Owned Properties, a majority
of the Equity Properties and all of the Managed Properties.
OPERATING AND FINANCIAL STRATEGIES
The Company uses the following operating and financing strategies to
attempt to meet its objective of providing long-term, predictable FFO per share
(certain terms used herein are defined below in "-- Accounting Policies and
Definitions"):
- Acquisition of Properties at Less Than Replacement Cost. The Company
attempts to acquire properties at a significant discount to their
replacement cost, which the Company believes will provide it with a
competitive cost advantage in comparison to newly constructed properties.
- Geographic Diversification. The Company operates in 49 states, the
District of Columbia and Puerto Rico. This geographic diversification
insulates the Company, to some degree, from inevitable downturns in any
one market. Among Owned Properties and Equity Properties, Houston, Texas,
the Company's largest single regional market, and Dallas, Texas, the
Company's second largest regional market, accounted for approximately
13.9% and 8.0%, respectively, of the properties in which the Company has
an ownership interest, on a pro rata basis.
- Market Growth. The Company seeks to operate in markets where population
and employment growth are expected to exceed the national average and
where it believes it can become a regionally significant owner or manager
of properties. The average annual population and employment growth rates
from 1990 to 1995 in The Company's five largest regional markets were
2.3% and 2.6%, respectively, compared to national averages of 1.1% and
1.7%, respectively. For the 1996 to 1999 period, average annual
population and employment growth rates in The Company's five largest
regional markets are forecasted to be 2.2% and 3.6%, respectively,
compared with projected national averages of 0.9% and 2.0%, respectively.
- Product Diversification. The Company's portfolio of apartment properties
also span a range of apartment community types, both within and among
markets. The Company's properties are located in both urban and suburban
areas and range from garden apartments to high rises and from luxury
townhomes to affordable properties.
- Capital Replacement. The Company believes that the physical condition and
amenities of its apartment communities are important factors in its
ability to maintain and increase rental rates. The Company also believes
that a program of regular maintenance of the quality of its apartments,
rather than episodic renovation, contributes to the reliability of
earnings per share. The Company presently allocates approximately $300
annually per owned apartment unit for Capital Replacements and reserves
unexpended amounts for future Capital Replacements. From time to time,
the Company reevaluates its Capital Replacement requirements and updates
the amount of its budgeted Capital
22
<PAGE> 131
Replacements per owned apartment unit accordingly. For the six months
ended June 30, 1998, the Company charged approximately $6.6 million for
Capital Replacements to its reserve, and spent approximately $13.5
million, and had aggregate cumulative unexpended Capital Replacement
reserves of approximately $2.4 million at June 30, 1998.
- Debt Financing. The Company's strategy is generally to incur debt to
increase its return on equity while maintaining acceptable interest
coverage ratios. The Company seeks to match debt maturities to the
character of the assets financed. Accordingly, the Company uses
predominantly long-term, fixed-rate and self-amortizing debt in order to
avoid the refunding or repricing risks of short-term borrowings. The
Company also uses short-term debt financing to fund acquisitions and
generally expects to refinance such borrowings with proceeds from equity
offerings or long-term debt financings. As of June 30, 1998,
approximately 6% of the Company's outstanding debt was short-term debt
and 94% was long-term debt.
- Dispositions. From time to time, the Company sells properties that do not
meet its return on investment criteria or that are located in areas where
the Company does not believe that the long-term real estate values
justify the continued investment in the properties. Three properties in
Houston and one property in each of Dallas and Phoenix were sold in
October 1997. The Company recognized a net gain of approximately $2.8
million on the sales.
In January 1998, the Company sold the Sun Valley Apartments, an
apartment community containing 430 apartment units located in Salt Lake
City, Utah, for $11.5 million, less selling costs of $0.3 million. The
Company recognized a $3.3 million gain on the sale. Cash proceeds from
the sale were used to repay a portion of the AIMCO Operating
Partnership's outstanding short-term indebtedness.
In September 1998, the Company sold the Rillito Village Apartments,
an apartment community containing 272 apartments units located in Tucson,
Arizona, for $6.8 million. The Company recognized a gain on the sale of
approximately $75,000 and used the cash proceeds to pay down a portion of
the outstanding balance on the Credit Facilities and to pay closing
costs.
- Dividend Policy. The Company pays dividends and distributions to share
its profitability with its stockholders and limited partners. For the
years ended December 31, 1997, 1996 and 1995, AIMCO distributed 66.5%,
72.3% and 75.1% of FFO to its stockholders. Amounts not distributed are
available for reinvestment, stock repurchases, amortization of debt and
provide a margin to insulate annual dividends from fluctuations in the
Company's business. AIMCO's dividend for 1997 was $1.85 per share. It is
the present policy of AIMCO to increase the dividend annually in an
amount equal to one-half the rate of the projected increase in FFO,
adjusted for capital replacements. In January 1998, AIMCO increased its
dividend to $0.5625 per share per quarter, commencing with the February
13, 1998 dividend payment which is equivalent to an annualized dividend
of $2.25 per share of Class A Common Stock. The minimum annual
distribution requirement for REITs, which require the distribution of
approximately 95% of "REIT taxable income" (see "Federal Income Taxation
of AIMCO and AIMCO Stockholders -- General"), may result in dividends
increasing at a greater rate in the future.
GROWTH STRATEGIES
The Company seeks growth through two primary sources -- acquisition and
internal expansion.
Acquisition Strategies. The Company believes its acquisition strategies
will increase profitability and predictability of earnings by increasing its
geographic diversification, economies of scale and opportunities to provide
traditional ancillary services to tenants at the AIMCO Properties. Since AIMCO's
initial public offering in July 1994 (the "AIMCO IPO"), the Company has
completed numerous acquisition transactions, expanding its portfolio of owned or
managed properties from 132 apartment properties with 29,343 units to 2,303
apartment properties with 396,090 units as of October 1, 1998.
23
<PAGE> 132
The Company believes that its demonstrated ability to evaluate and complete
acquisitions, its property management record and its economies of scale, to the
extent that the Company can operate a property more efficiently than the
existing owner or some competing purchasers, all provide credibility and
advantage in negotiating acquisitions. In addition, the ability to issue OP
Units to sellers of properties may provide tax deferral opportunities to sellers
and could give the Company an advantage over competing buyers that cannot offer
such tax deferral opportunities. The Company acquires additional properties
primarily in three ways:
- Direct Acquisitions. The Company may directly acquire individual
properties or portfolios and controlling interests in entities that own
or control such properties or portfolios. During the year ended December
31, 1997, the Company has directly acquired 44 apartment properties for a
total consideration of $467.4 million, consisting of $191.0 million in
cash, approximately 1.9 million Common OP Units valued at $56.0 million
and the assumption or incurrence of $220.4 million of indebtedness. See
"-- Recent Property Acquisitions and Dispositions."
- Acquisition of Managed Properties. The Company believes that its property
management operations support its acquisition activities. Its
relationships with owners of the Managed Properties may provide it with a
means of learning of acquisition opportunities at an early stage of the
sale process. In addition, its familiarity with the property and its
ability to quickly evaluate the property give it an advantage in pursuing
and completing any such acquisition in a timely fashion. Since the AIMCO
IPO, the Company has acquired 12 properties comprising 3,530 units from
its managed portfolio for $129.0 million.
- Increasing its Interest in Partnerships. For properties where the Company
owns a general partnership interest in the property-owning partnership,
the Company may seek to acquire, subject to its fiduciary duties, the
outstanding limited partnership interests for cash or, in some cases, in
exchange for Common OP Units. After consummation of the Insignia Merger,
the AIMCO Operating Partnership intends to offer to purchase limited
partnership interests in syndicated real estate limited partnerships in
which AIMCO holds partnership interests. The AIMCO Operating Partnership,
subject to applicable law, plans to offer to purchase certain of such
limited partnership interests in exchange for (i) equity securities of
the AIMCO Operating Partnership to be issued pursuant to the Registration
Statement of which this Prospectus forms a part, (ii) cash or (iii) a
combination of such equity securities and cash. Such offers are expected
to include terms that allow limited partners to continue to hold their
limited partnership interests.
- In November 1996, the Company acquired the English Partnerships, which
owned 22 apartment properties. The Company subsequently purchased
pursuant to tender offers to acquire all of the outstanding limited
partnership interests of 25 of the English Partnerships, approximately
46%, in the aggregate, of the outstanding limited partnership interests
in such partnerships for $15.0 million in cash and approximately 71,500
OP Units valued at $1.7 million.
- As of December 31, 1997, the Company has also commenced tender offers to
acquire all of the outstanding limited partnership interests in 26
partnerships owning 25 properties for an aggregate amount of
approximately $79.0 million. Through September 30, 1997, pursuant to such
tender offers, the Company has purchased approximately 20.2%, in the
aggregate, of the outstanding limited partnership interests for $16.0
million in cash.
Internal Growth Strategies. The Company pursues internal growth through the
following strategies:
- Revenue Increases. The Company increases rents where feasible and seeks
to improve occupancy rates. The Company believes that its policy of
capital improvements, amenities and customer service allows it to
maintain demand and to increase its rents above the rate of inflation in
the local market. The Company's "same store" revenues from the Owned
Properties (based on properties owned from period to period) have grown
by 3.3% from the fiscal year ended December 31, 1995 to that ended
December 31, 1996, and by 2.1% from the year ended December 31, 1996 to
that ended December 31, 1997, compared to an urban consumer price
inflation rate of 2.8% and 2.3% over the same periods.
24
<PAGE> 133
- Redevelopment of Properties. The Company believes redevelopment of
selected properties in superior locations provides advantages over
development of new properties, because, compared with new development,
redevelopment generally can be accomplished with relatively lower
financial risk, in less time and with reduced delays attributable to
governmental regulation. Recently the Company acquired and redeveloped
Sun Katcher, a 360-unit property in Jacksonville, Florida, at a cost of
$8.9 million, including $4.9 million in redevelopment costs. The Company
also recently commenced the renovation and upgrading of Bay West, a
376-unit property in Tampa, Florida, for a projected cost of $4.8
million, to reposition the property in the marketplace. In addition, the
Company expects to undertake a major renovation of the Morton Towers
apartments, a 1,277 unit property located in Miami Beach, Florida, at an
estimated cost of $35 million. The Company generally finances
redevelopment initially with borrowings from the Credit Facilities, and
subsequently arranges permanent financing.
- Expansion of Properties. The Company believes that expansion within or
adjacent to existing AIMCO Properties also provides growth opportunities
at lower risk than new development. Such expansion can offer cost
advantages to the extent common area amenities and on-site management
personnel can service the expanded property. Recently the Company
constructed 92 additional units at Fairways, in Phoenix, Arizona, at a
cost of $6.5 million. The Company is planning the construction of 42
additional units at Township, in Littleton, Colorado, for a projected
cost of more than $3.0 million. In addition, the Company owns or controls
approximately 136 acres of vacant land, adjacent to existing Owned
Properties or Equity Properties, which the Company believes is suitable
for the development of approximately 1,300 apartment units. The Company
generally finances expansions initially with borrowings from the Credit
Facilities, and subsequently arranges permanent financing.
- Conversion of Affordable Properties; Improvement of Performance. The
Company believes that it may be able to significantly increase its return
from its portfolio of affordable properties by improving operations at
some of its properties or by converting some of its properties to
conventional properties. While management of the Company has commenced
review of the affordable properties, it has not yet made any
determination as to the conversion of any affordable property.
- Ancillary Services. The Company's management believes that its ownership
and management of the AIMCO Properties provides it with unique access to
a customer base for the sale of additional services which generate
incremental revenues. The Company currently provides cable television,
telephone services and carport, garage and storage space rental at
certain AIMCO Properties. For example, as of June 30, 1998, the Company
has installed cable television service to 12,600 units and currently has
more than 7,400 subscribers.
- Controlling Expenses. Cost reductions are accomplished by exploiting
economies of scale. As a result of the size of its portfolio and its
creation of regional concentrations of properties, the Company has the
ability to leverage fixed costs for general and administrative
expenditures and certain operating functions, such as insurance,
information technology and training, over a larger property base. For
example, the Company's insurance subsidiary provides workers'
compensation and employer liability insurance company-wide, without
incurring material incremental costs as the Company's property assets
grow.
The Company also instills cost discipline in its property managers by
benchmarking their operations against the local market and other AIMCO
Properties.
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PROPERTY MANAGEMENT STRATEGIES
Divisions. The Company's property management strategy is to achieve
improvements in operating results by combining centralized financial control and
uniform operating procedures with localized property management decision making
and market knowledge. The Company's management operations are organized into
five divisions, each supervised by a Division Vice President, who has, on
average, 17 years of experience in apartment management.
<TABLE>
<CAPTION>
APARTMENT APARTMENT
UNITS COMMUNITIES
DIVISIONS MANAGED(1) MANAGED(1)
--------- ---------- -----------
<S> <C> <C>
Great West.......................................... 65,644 437
Southwest........................................... 62,718 309
Southeast........................................... 68,441 341
Mid Atlantic........................................ 63,390 473
Midwest............................................. 69,134 356
------- -----
329,297 1,916
======= =====
</TABLE>
- ---------------
(1) Includes only units and apartment communities managed by the Company as of
October 1, 1998. Does not include 14,279 units in 100 apartment communities
in which the Company has an ownership interest but does not manage and 2,332
senior living units, all of which are managed as a separate portfolio.
Customer Service. The Company believes that resident satisfaction is
directly related to the experience and training of on-site management personnel.
The Company provides on-site management trained to respond promptly to
residents' needs. To improve customer service, the Company conducts annual
resident satisfaction surveys, guarantees that material defects will be
corrected in 24 hours and refunds related rent if that commitment is not met.
Personnel Policies. The Company has attempted to reduce turnover and retain
experienced personnel by establishing an employee mentoring program and
providing managers with incentive-based compensation. In addition, managing
properties for third parties, the Company believes, improves performance at
Managed Properties and Owned Properties alike by subjecting property managers to
market-based pricing and service standards.
START. Properties that are behind budget or face other significant
operating difficulties receive direct supervision and intervention from START, a
team of professionals, led by Executive Vice President Steven Ira, a founder of
the Company. Members of START focus on not more than 10 to 15 properties at any
one time, which allows them to focus sharply on the subject properties. START
also oversees due diligence on acquisitions and major construction activities.
Management Incentives. The Company believes that equity ownership by
management and equity- and incentive-based compensation are important factors in
attracting, retaining and motivating the most qualified and experienced
personnel and directors. The Company's goal is to align management's interests
with those of stockholders through the use of equity-based compensation plans to
direct management's efforts towards enhancing shareholder value.
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<PAGE> 135
The following table reflects the ownership of Class A Common Stock and OP
Units by senior management of the Company, which, as of June 30, 1998 (assuming
full conversion of OP Units), represented approximately 7.5% of the outstanding
Class A Common Stock.
<TABLE>
<CAPTION>
TOTAL SHARES OF
COMMON STOCK AND
OP UNITS OWNED PERCENTAGE
BY MANAGEMENT(1) OWNED INVESTMENT
---------------- ---------- ------------
<S> <C> <C> <C>
AIMCO IPO................................. 926,000 8.6% $ 17 million
December 31, 1995......................... 1,067,000 7.7% $ 21 million
December 31, 1996......................... 2,303,000 12.5% $ 65 million
December 31, 1997......................... 3,843,000 8.4% $141 million
June 30, 1998............................. 4,045,000 7.5% $160 million
</TABLE>
- ---------------
(1) Encumbered by outstanding secured partially recourse notes in the
amount of $45.5 million as of May 31, 1998.
- On July 25, 1997, eleven senior managers of AIMCO purchased 1.1 million
shares of Class A Common Stock at a price of $30 per share in exchange
for promissory notes secured by such stock, which notes are recourse as
to 25% of the principal owed.
- AIMCO pays a majority of the compensation to its outside directors in
Class A Common Stock.
- AIMCO issues all stock options at the then-current market price, and
requires that employees own Class A Common Stock before receiving their
options. As of May 31, 1998, the number of outstanding options was
5,235,997.
On January 21, 1998, the AIMCO Operating Partnership sold an aggregate of
15,000 OP Units designated as Class I High Performance Units (the "High
Performance Units") to a joint venture formed by fourteen of the Company's
officers, and to three of AIMCO's non-employee directors for an aggregate
purchase price of $2,070,000, of which $1,980,300 was paid by the joint venture
and an aggregate of $89,700 was paid by three non-employee directors. The
purchase price of the High Performance Units was determined by the AIMCO Board
of Directors, based upon the advice of an independent valuation expert that this
purchase price represented the fair market value of the High Performance Units.
The sale of the High Performance Units was ratified by the stockholders on May
8, 1998.
Holders of High Performance Units have no rights to receive distributions
or allocations of income or loss, or to redeem their High Performance Units
prior to the date (the "Valuation Date") that is the earlier of (i) January 1,
2001, or (ii) the date on which a change of control occurs. If, on the Valuation
Date, the cumulative Total Return of the Class A Common Stock from January 1,
1998 to the Valuation Date (the "Measurement Period") exceeds 115% of the
cumulative Total Return (as defined below) of a peer group index over the same
period, and is at least the equivalent of a 30% cumulative Total Return over
three years (the "Minimum Return"), then, on and after the Valuation Date,
holders of the 15,000 High Performance Units will be entitled to receive
distributions and allocations of income and loss from the AIMCO Operating
Partnership in the same amounts and at the same times (subject to certain
exceptions upon liquidation of the AIMCO Operating Partnership) as would holders
of a number of OP Units equal to the quotient obtained by dividing (i) the
product of (A) 15% of the amount by which the cumulative Total Return of the
Class A Common Stock over the Measurement Period exceeds the greater of 115% of
the peer group index or the Minimum Return, multiplied by (B) the weighted
average market value of the Company's equity capitalization (including Class A
Common Stock and OP Units) by (ii) the market value of one share of Class A
Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative
Total Return of the Class A Common Stock does not satisfy these criteria, then,
on and after the Valuation Date, holders of the 15,000 High Performance Units
will be entitled to receive distributions and allocations of income and loss
from the AIMCO Operating Partnership in the same amounts and at the same times
(subject to certain exceptions upon a liquidation of the AIMCO Operating
Partnership) as would holders of 150 OP Units. For purposes of
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<PAGE> 136
determining the market value of Class A Common Stock or OP Units as of any date,
the average closing price of the Class A Common Stock for the 20 trading days
immediately preceding such date is used. It is expected that the Morgan Stanley
REIT Index, a capitalization-weighted index with dividends reinvested of the
most actively traded real estate investment trusts, will be used as the peer
group index for purposes of the High Performance Units.
"Total Return" means, for any security and for any period, the cumulative
total return for such security over such period, as measured by (i) the sum of
(a) the cumulative amount of dividends paid in respect of such security for such
period (assuming that all cash dividends are reinvested in such security as of
the payment date for such dividend based on the security price on the dividend
payment date), and (b) an amount equal to (x) the security price at the end of
such period, minus (y) the security price at the beginning of such period,
divided by (ii) the security price at the beginning of the measurement period;
provided, however, that if the foregoing calculation results in a negative
number, the "Total Return" shall be equal to zero.
Upon the occurrence of a change of control, any holder of High Performance
Units may, subject to certain restrictions, require the AIMCO Operating
Partnership to redeem all or a portion of the High Performance Units held by
such party in exchange for a cash payment per unit equal to the market value of
a share of Class A Common Stock at the time of redemption. However, in the event
that any High Performance Units are tendered for redemption, the AIMCO Operating
Partnership's obligation to pay the redemption price is subject to the prior
right of AIMCO to acquire such High Performance Units in exchange for an equal
number of shares of Class A Common Stock (subject to certain adjustments).
ACCOUNTING POLICIES AND DEFINITIONS
The Company has the following accounting policies and definitions:
Funds from Operations. The Board of Governors of NAREIT defines FFO as net
income (loss), computed in accordance with generally accepted accounting
principles, excluding gains and losses from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. The Company calculates FFO in a manner
consistent with the NAREIT definition, which includes adjustments for minority
interest in the AIMCO Operating Partnership, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision for
unconsolidated subsidiaries and less the payment of dividends on perpetual
preferred stock. The Company's management believes that presentation of FFO
provides investors with industry accepted measurements which help facilitate
understanding of the Company's ability to meet required dividend payments,
capital expenditures, and principal payments on its debt. There can be no
assurance that the Company's basis of computing FFO is comparable with that of
other REITs.
Capital Replacements. The Company capitalizes spending for items which
generally cost more than $250 and have a useful life of more than one year, such
as carpet replacement, new appliances, new roofs or parking lot repaving.
Capitalized spending which maintains a property is termed a "Capital
Replacement." In the experience of the Company's management, this spending is
better considered a recurring cost of preserving an asset rather than an
additional investment.
Consolidation. For financial reporting purposes, the Company consolidates
the results of those corporations in which it owns a majority of the outstanding
voting stock, and those limited partnerships and limited liability companies in
which it owns both a general partnership or managing member interest and
controls investment decisions with respect to the underlying assets. The Company
generally has a 30% to 51% economic interest in such entities. Entities in which
the Company has less than a 30% economic interest or limited control are
accounted for on the equity method. The Company policy is generally to hold
Class C properties and affordable properties (substantially all of which are
Class C properties) in unconsolidated partnerships. The Company accounts for
these properties on the equity method in accordance with GAAP.
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<PAGE> 137
POLICIES OF THE COMPANY WITH RESPECT TO CERTAIN OTHER ACTIVITIES
The following is a discussion of certain other investment objectives and
policies, financing policies and other policies of the Company. These policies
are determined by the officers and directors of AIMCO and may be amended or
revised from time to time at their discretion without a vote of AIMCO's
stockholders. As the sole general partner of the AIMCO Operating Partnership,
AIMCO also determines the investment policies of the AIMCO Operating
Partnership.
Investment in Others. The Company may also participate with other entities
in property ownership, through joint ventures or other types of co-ownership.
Any such equity investment may be subject to existing mortgage financing and
other indebtedness which would have priority over the equity of the Company in
that property.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities. The Company may also acquire securities of or interests in persons
engaged in the acquisition, redevelopment and/or management of multifamily
apartment properties.
Investments in Real Estate Mortgages. While the Company generally
emphasizes direct real estate investments, it may, in its discretion and subject
to the percentage ownership limitations and gross income tests necessary for
REIT qualification, invest in mortgage and other indirect real estate interests,
including securities of other real estate investment trusts. The Company has not
previously invested in mortgages or securities of other real estate investment
trusts and the Company does not presently intend to invest to a significant
extent in mortgages or securities of other real estate investment trusts.
Operating and Financing Policies. The Company seeks to maintain a ratio of
EBITDA (less a provision of approximately $300 per owned apartment unit) to debt
(the "Debt Coverage Ratio") of at least 2 to 1, and to match debt maturities to
the character of the assets financed. See "-- Operating and Financial
Strategies -- Debt Financing." The Company, however, may from time to time
re-evaluate borrowing policies in light of then current economic conditions,
relative costs of debt and equity capital, market values of properties, growth
and acquisition opportunities and other factors. The Company may modify its
borrowing policy and may increase or decrease its Debt Coverage Ratio policy.
To the extent that the AIMCO Board of Directors determines to seek
additional capital, the Company may raise such capital through additional equity
offerings, debt financing or retention of cash flow (after consideration of
provisions of the Code requiring the distribution by a REIT of a certain
percentage of taxable income and taking into account taxes that would be imposed
on undistributed taxable income), or through a combination of these sources. The
Company presently anticipates that any additional borrowings will be made
through the AIMCO Operating Partnership, although AIMCO might incur borrowings
that would be reloaned to the AIMCO Operating Partnership. The AIMCO Operating
Partnership cannot incur indebtedness that is recourse to AIMCO without AIMCO's
approval. AIMCO may approve the AIMCO Operating Partnership's incurring
additional debt that is recourse to the AIMCO Operating Partnership. Borrowings
may be unsecured or may be secured by any or all assets of AIMCO, the AIMCO
Operating Partnership, or any existing or new property and may have full or
limited recourse to all or any portion of the assets of AIMCO, the AIMCO
Operating Partnership, or any existing or new property.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
AIMCO may also determine to issue securities senior to the Class A Common
Stock, including preferred stock and debt securities (either of which may be
convertible into capital stock or be accompanied by warrants to purchase capital
stock). The Company may also determine to finance acquisitions through the
exchange of properties or issuance of additional OP Units, shares of Class A
Common Stock or other securities.
If the AIMCO Board of Directors determines to raise additional equity
capital, the AIMCO Board of Directors has the authority, without stockholder
approval, to issue additional shares of Class A Common Stock or other capital
stock (including securities senior to the Class A Common Stock) in any manner
(and on such terms and for such consideration) it deems appropriate, including
in exchange for property. Such
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<PAGE> 138
issuances might cause a dilution of a stockholder's investment in AIMCO. If the
AIMCO Board of Directors determines to raise additional equity capital to fund
investments by the AIMCO Operating Partnership, AIMCO will contribute such funds
to the AIMCO Operating Partnership as a contribution to capital and purchase of
additional general partnership interests. AIMCO may issue additional shares of
Class A Common Stock in connection with the acquisition of OP Units that are
tendered to the AIMCO Operating Partnership for redemption.
The AIMCO Board of Directors also has the authority to cause the AIMCO
Operating Partnership to issue additional OP Units in any manner (and on such
terms and for such consideration) as it deems appropriate, including in exchange
for property. Any such new OP Units will be redeemable at the option of the
holder, which redemption AIMCO intends to cause to be made in Class A Common
Stock pursuant to the redemption rights.
Conflict of Interest Policies. The Company has adopted certain policies
designed to minimize or eliminate conflicts of interests between the Company and
its executive officers and directors. Without the approval of a majority of the
disinterested directors, the Company will not (i) acquire from or sell to any
director, officer or employee of the Company or any entity in which a director,
officer or employee of the Company owns more than a 1% interest, or acquire from
or sell to any affiliate of any of the foregoing, any assets or other property
of the Company, (ii) make any loan to or borrow from any of the foregoing
persons, or (iii) engage in any material transaction with the foregoing. In
addition, the Company has entered in to employment agreements with Messrs.
Considine, Kompaniez and Ira which include provisions intended to eliminate or
minimize potential conflicts of interest, and which provide that those persons
will be prohibited from engaging directly or indirectly in the acquisition,
development, operation or management of other multifamily apartment properties
outside of the Company, except with respect to certain investments currently
held by such persons, as to which investments those persons have committed to an
orderly liquidation. There can be no assurance, however, that these policies
always will be successful in eliminating the influence of such conflicts, and if
they are not successful, decisions could be made that might fail to reflect
fully the interests of AIMCO's stockholders as a whole.
Policies with Respect to Other Activities. The Company has authority to
offer shares of its capital stock or other securities and to repurchase or
otherwise reacquire its shares or any other securities, has done so, and may
engage in such activities in the future. From its inception, the Company has
made loans aggregating $5.1 million to certain entities owning properties
subsequently acquired by the Company. No balances remain outstanding on such
loans. In the same period, the Company has made loans aggregating $76.5 million
to its officers for the purchase of Class A Common Stock and $5.1 million to its
officers and other entities to acquire interests in subsidiaries of the Company.
The outstanding balances on such loans as of August 31, 1998 were $42.7 million
and $3.1 million, respectively. Messrs. Considine and Kompaniez have repaid in
part, using $2.0 million in proceeds distributed to them from the sale of NHP
Common Stock by AIMCO/NHP Holdings, Inc. ("ANHI") to AIMCO, outstanding
promissory notes payable by them to ANHI in an aggregate amount of $3.2 million,
which loan was made to them by ANHI to acquire their interest in ANHI. In
addition, the Company from time to time advances amounts for relocation and
other expenses. The Company has not engaged in underwriting securities of other
issuers. Each of AIMCO and the AIMCO Operating Partnership intend to make
investments in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940, as amended.
The Company may invest in the securities of other issuers engaged in the
ownership, acquisition or management of multifamily apartment properties for the
purpose of exercising control.
At all times, the Company intends to make investments in such a manner as
to be consistent with the requirements of the Code for AIMCO to qualify as a
REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the AIMCO Board of Directors determines that it is no
longer in the best interest of AIMCO to qualify as a REIT.
AIMCO, as a REIT, is required to distribute annually to holders of Class A
Common Stock at least 95% of its "REIT taxable income," which, as defined by the
Code and the Treasury Regulations, is generally equivalent to net taxable
ordinary income. AIMCO measures its economic profitability, and intends to pay
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regular dividends to its stockholders, based on earnings during the relevant
period. However, the future payment of dividends by AIMCO will be at the
discretion of the AIMCO Board of Directors and will depend on numerous factors,
including AIMCO's financial condition, its capital requirements, the annual
distribution requirements under the provisions of the Code applicable to REITs
and such other factors as the AIMCO Board deems relevant.
YEAR 2000 COMPLIANCE
The Company's management has determined that it will be necessary to modify
or replace certain accounting and operational software and hardware to enable
its computer systems to operate properly subsequent to December 31, 1999. As a
result, management has appointed a team of internal staff to research and manage
the conversion or replacement of existing systems to comply with year 2000
requirements. The team's activities are designed to ensure that there is no
adverse effect on the Company's core business operations, and that transactions
with tenants, suppliers and financial institutions are fully supported.
The Company utilizes numerous accounting and reporting software packages
and computer hardware to conduct its business, some of which already comply with
year 2000 requirements. Management estimates that the modification or
replacement of non-compliant accounting and reporting software and hardware will
total approximately $0.3 million.
The Company's management also believes that certain of the Owned Properties
possess operational systems (e.g. elevators, fire alarm and extinguishment
systems and security systems) which also must be modified or replaced in order
to function properly in the 21st century. Management is currently engaged in the
identification of all non-compliant operational systems, and has not yet
determined the estimated cost of replacing or modifying such systems.
DESCRIPTION OF PREFERRED STOCK
GENERAL
AIMCO may issue, from time to time, shares of one or more series or classes
of Preferred Stock. The following description sets forth certain general terms
and provisions of the Preferred Stock to which any Prospectus Supplement may
relate. The particular terms of any series of Preferred Stock that may be issued
and sold pursuant hereto, and the extent, if any, to which such general
provisions may apply to the series of Preferred Stock so offered will be
described in the Prospectus Supplement relating to such Preferred Stock. The
following summary of certain provisions of the Preferred Stock do not purport to
be complete and is subject to, and is qualified in its entirety by express
reference to, the provisions of the Charter relating to a specific series of the
Preferred Stock, which will be in the form filed as an exhibit to or
incorporated by reference in the Registration Statement of which this Prospectus
is a part at or prior to the time of issuance of such series of Preferred Stock.
The Charter authorizes the issuance of up to 510,750,000 shares of its
capital Stock. As of August 31, 1998, 486,027,500 shares were classified as
Class A Common Stock, 262,500 shares were classified as Class B Common Stock,
750,000 shares were classified as Class B Cumulative Convertible Preferred
Stock, par value $.01 per share ("Class B Preferred Stock"), 2,760,000 shares
were classified as Class C Cumulative Preferred Stock, par value $.01 per share
("Class C Preferred Stock"), 4,600,000 shares were classified as Class D
Cumulative Preferred Stock, par value $.01 per share ("Class D Preferred
Stock"), 10,000,000 shares were classified as Class E Cumulative Preferred
Stock, par value $.01 per share ("Class E Preferred Stock"), 4,050,000 shares
were classified as Class G Cumulative Preferred Stock, par value $.01 per share
("Class G Preferred Stock"), and 2,300,000 shares were classified as Class H
Cumulative Preferred Stock, par value $.01 per share ("Class H Preferred
Stock"). Under the Charter, the AIMCO Board of Directors has the authority to
classify and reclassify any of its unissued capital Stock into shares of
Preferred Stock by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of capital Stock including, but not limited to, ownership
restrictions consistent with the Ownership Limit with respect to each
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<PAGE> 140
series or class of capital Stock, and the number of shares constituting each
series or class, and to increase or decrease the number of shares of any such
series or class, to the extent permitted by the Maryland General Corporation Law
(the "MGCL").
The AIMCO Board of Directors is authorized to determine for each series of
Preferred Stock, and the Prospectus Supplement will set forth with respect to
each class or series that may be issued and sold pursuant hereto: (i) the
designation of such shares and the number of shares that constitute such series,
(ii) the dividend rate (or the method of calculation thereof), if any, on the
shares of such series and the priority as to payment of dividends with respect
to other classes or series of capital stock of AIMCO, (iii) the dividend periods
(or the method of calculation thereof), (iv) the voting rights of the shares,
(v) the liquidation preference and the priority as to payment of such
liquidation preference with respect to other classes or series of capital stock
of AIMCO and any other rights of the shares of such series upon any liquidation
or winding-up of AIMCO, (vi) whether or not and on what terms the shares of such
series will be subject to redemption or repurchase at the option of AIMCO, (vii)
whether and on what terms the shares of such series will be convertible into or
exchangeable for other debt or equity securities of AIMCO, (viii) whether the
shares of such series of Preferred Stock will be listed on a securities
exchange, (ix) any special United States federal income tax considerations
applicable to such series, and (x) the other rights and privileges and any
qualifications, limitations or restrictions of such rights or privileges of such
series not inconsistent with the Charter and the MGCL.
DIVIDENDS
Holders of shares of Preferred Stock, shall be entitled to receive, when
and as declared by the AIMCO Board of Directors, out of funds of AIMCO legally
available therefor, an annual cash dividend payable at such dates and at such
rates, if any, per share per annum as set forth in the applicable Prospectus
Supplement.
Each series of Preferred Stock that may be issued and sold pursuant hereto,
will rank junior as to dividends to any Preferred Stock that may be issued in
the future that is expressly senior as to dividends to the Preferred Stock. If
at any time AIMCO has failed to pay accrued dividends on any such senior shares
at the time such dividends are payable, AIMCO may not pay any dividend on the
Preferred Stock or redeem or otherwise repurchase shares of Preferred Stock
until such accumulated but unpaid dividends on such senior shares have been paid
or set aside for payment in full by AIMCO.
No dividends (other than in Class A Common Stock or Class B Common Stock
(collectively, the "Common Stock") or other capital Stock ranking junior to the
Preferred Stock of any series as to dividends and upon liquidation) shall be
declared or paid or set aside for payment, nor shall any other distribution be
declared or made upon the Common Stock, or any other capital stock of AIMCO
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends, nor shall any Common Stock or any other capital stock of AIMCO
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by AIMCO (except by
conversion into or exchange for other capital stock of AIMCO ranking junior to
the Preferred Stock of such series as to dividends and upon liquidation) unless
(i) if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for all past dividend periods and the then current dividend period and
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period; provided, however,
that any monies theretofore deposited in any sinking fund with respect to any
Preferred Stock in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such Preferred Stock in
accordance with the terms of such sinking fund, regardless of whether at the
time of such application full cumulative dividends upon shares of the Preferred
Stock outstanding on the last dividend payment date shall have been paid or
declared and set apart for payment; and provided, further, that any such junior
or parity preferred stock or Common
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<PAGE> 141
Stock may be converted into or exchanged for stock of AIMCO ranking junior to
the Preferred Stock as to dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
CONVERTIBILITY
The applicable Prospectus Supplement for each series of Preferred Stock
that may be issued and sold pursuant hereto will set forth the terms and
conditions of such series of Preferred Stock with respect to whether such series
of Preferred Stock will be convertible into, or exchangeable for, other
securities or property, including the initial conversion or exchange rate and
any adjustments thereto, the conversion or exchange period and any other
conversion or exchange provisions.
REDEMPTION AND SINKING FUND
The applicable Prospectus Supplement for each series of Preferred Stock
that may be issued and sold pursuant hereto will set forth the terms and
conditions of such series of Preferred Stock with respect to redemption rights
and the benefit of any sinking fund, including the dates and redemption prices
of any such redemption, any conditions thereto, and any other redemption or
sinking fund provisions.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of AIMCO, the
holders of shares of each series of Preferred Stock that may be issued and sold
pursuant hereto are entitled to receive out of assets of AIMCO available for
distribution to stockholders, before any distribution of assets is made to
holders of: (i) any other shares of Preferred Stock ranking junior to such
series of Preferred Stock as to rights upon liquidation, dissolution or winding
up; and (ii) shares of Common Stock, liquidating distributions per share in the
amount of the liquidation preference specified in the applicable Prospectus
Supplement for such series of Preferred Stock plus any dividends accrued and
accumulated but unpaid to the date of final distribution; but the holders of
each series of Preferred Stock will not be entitled to receive the liquidating
distribution of, plus such dividends on, such shares until the liquidation
preference of any shares of AIMCO's capital stock ranking senior to such series
of the Preferred Stock as to the rights upon liquidation, dissolution or winding
up shall have been paid (or a sum set aside therefor sufficient to provide for
payment) in full. If upon any liquidation, dissolution or winding up of AIMCO,
the amounts payable with respect to the Preferred Stock, and any other Preferred
Stock ranking as to any such distribution on a parity with the Preferred Stock
are not paid in full, the holders of the Preferred Stock and such other parity
preferred stock will share ratably in any such distribution of assets in
proportion to the full respective preferential amount to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of Preferred Stock will not be
entitled to any further participation in any distribution of assets by AIMCO.
Neither a consolidation or merger of AIMCO with another corporation nor a sale
of securities shall be considered a liquidation, dissolution or winding up of
AIMCO.
VOTING RIGHTS
Holders of Preferred Stock that may be issued and sold pursuant hereto will
have the voting rights required by law and the voting rights described below.
Whenever dividends on any applicable series of Preferred Stock or any other
class or series of stock ranking on a parity with the applicable series of
Preferred Stock with respect to the payment of dividends shall be in arrears for
the equivalent of six quarterly dividend periods, whether or not consecutive,
the holders of shares of such series of Preferred Stock (voting separately as a
class with all other series of Preferred Stock then entitled to such voting
rights) will be entitled to vote for the election of two of the authorized
number of directors of AIMCO at the next annual meeting of stockholders and at
each subsequent meeting until all dividends accumulated on such series of
Preferred Stock shall have been fully paid or set apart for payment. The term of
office of all directors elected by the holders of
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such Preferred Stock shall terminate immediately upon the termination of the
right of the holders of such Preferred Stock to vote for directors. Holders of
shares of Preferred Stock that may be issued and sold pursuant hereto will have
one vote for each share held.
So long as any shares of any series of Preferred Stock remain outstanding,
AIMCO shall not, without the consent of holders of at least two-thirds of the
shares of such series of Preferred Stock outstanding at the time, voting
separately as a class with all other series of Preferred Stock of AIMCO upon
which like voting rights have been conferred and are exercisable, (i) issue or
increase the authorized amount of any class or series of stock ranking prior to
the outstanding Preferred Stock as to dividends or upon liquidation or (ii)
amend, alter or repeal the provisions of the Charter relating to such series of
Preferred Stock, whether by merger, consolidation or otherwise, so as to
materially adversely affect any power, preference or special right of such
series of Preferred Stock or the holders thereof; provided, however, that any
increase in the amount of the authorized Common Stock or authorized Preferred
Stock or any increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series of Common Stock or
Preferred Stock ranking on a parity with or junior to Preferred Stock as to
dividends and upon liquidation, dissolution or winding up shall not be deemed to
materially adversely affect such powers, preferences or special rights.
MISCELLANEOUS
The holders of Preferred Stock will have no preemptive rights. The
Preferred Stock that may be issued and sold pursuant hereto, upon issuance
against full payment of the purchase price therefor, will be fully paid and
nonassessable. Shares of Preferred Stock redeemed or otherwise reacquired by
AIMCO shall resume the status of authorized and unissued shares of Preferred
Stock undesignated as to series, and shall be available for subsequent issuance.
The applicable Prospectus Supplement will set forth the restrictions, if any, on
repurchase or redemption of the Preferred Stock while there is any arrearage on
sinking fund installments. Payment of dividends on, and the redemption or
repurchase of, any series of Preferred Stock may be restricted by loan
agreements, indentures and other agreements entered into by AIMCO. The
applicable Prospectus Supplement will describe any material contractual
restrictions on such dividend payments.
OTHER RIGHTS
The shares of a series of Preferred Stock that may be issued and sold
pursuant hereto will have the preferences, voting powers or relative,
participating, optional or other special rights set forth above or in the
applicable Prospectus Supplement or the Charter or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Preferred Stock that
may be issued and sold pursuant hereto will be designated in the applicable
Prospectus Supplement.
CLASS B PREFERRED STOCK
On August 4, 1997, AIMCO issued 750,000 shares of its Class B Preferred
Stock to an institutional investor (the "Preferred Share Investor") in a private
transaction. The Class B Preferred Stock (a) ranks prior to the Common Stock and
the Class E Preferred Stock with respect to dividends, liquidation, dissolution
and winding-up, and has an aggregate liquidation value of $75 million and (b)
ranks on parity with the Class C Preferred Stock, the Class D Preferred Stock,
the Class G Preferred Stock and the Class H Preferred Stock. Holders of the
Class B Preferred Stock are entitled to receive, when, as and if declared by the
AIMCO Board of Directors, quarterly cash dividends per share equal to the
greater of (i) $1.78125 (the "Base Rate") and (ii) the cash dividends declared
on the number of shares of Class A Common Stock into which one share of Class B
Preferred Stock is convertible. On or after August 4, 1998, each share of Class
B Preferred Stock may be converted at the option of the holder into 3.28407
shares of Class A Common Stock, subject to certain anti-dilution adjustments.
AIMCO may redeem any or all of the Class B Preferred Stock on or after August 4,
2002, at a redemption price of $100 per share, plus unpaid dividends accrued on
the shares redeemed.
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Holders of Class B Preferred Stock, voting as a class with the holders of
all AIMCO capital stock that ranks on a parity with the Class B Preferred Stock
with respect to the payment of dividends or upon liquidation, dissolution,
winding up or otherwise ("Class B Parity Stock"), will be entitled to elect (i)
two directors of AIMCO if six quarterly dividends (regardless of whether
consecutive) on the Class B Preferred Stock or any Class B Parity Stock are in
arrears, and (ii) one director of AIMCO if for two consecutive quarterly
dividend periods AIMCO fails to pay at least $0.4625 in dividends on the Class A
Common Stock. The affirmative vote of the holders of two-thirds of the
outstanding shares of Class B Preferred Stock will be required to amend the
Charter in any manner that would adversely affect the rights of the holders of
Class B Preferred Stock, and to approve the issuance of any capital stock that
ranks senior to the Class B Preferred Stock with respect to payment of dividends
or upon liquidation, dissolution, winding up or otherwise. If the IRS were to
make a final determination that AIMCO does not qualify as a REIT in accordance
with Sections 856 through 860 of the Internal Revenue Code, the Base Rate for
the quarterly cash dividends on the Class B Preferred Stock would increase to
$3.03125 per share.
The agreement pursuant to which AIMCO issued the Class B Preferred Stock
(the "Preferred Share Purchase Agreement") provides that the Preferred Share
Investor may require AIMCO to repurchase such investor's Class B Preferred Stock
in whole or in part at a price of 105% of the liquidation preference thereof,
plus accrued and unpaid dividends on the purchased shares, if (i) AIMCO shall
fail to continue to be taxed as a REIT pursuant to Sections 856 through 860 of
the Internal Revenue Code, or (ii) upon the occurrence of a change of control
(as defined in the Preferred Share Purchase Agreement). The Preferred Share
Purchase Agreement also provides that, so long as the Preferred Share Investor
owns Class B Preferred Stock with an aggregate liquidation preference of at
least $18.75 million, neither AIMCO, the AIMCO Operating Partnership nor any
subsidiary of AIMCO may issue preferred securities or incur indebtedness for
borrowed money if immediately following such issuance and after giving effect
thereto and the application of the net proceeds therefrom, AIMCO's ratio of
aggregate consolidated earnings before interest, taxes, depreciation and
amortization to aggregate consolidated fixed charges for the four fiscal
quarters immediately preceding such issuance would be less than 1.5 to 1.
Subject to certain exceptions specified in the provisions of the Charter
establishing the terms of the Class B Preferred Stock, no holder may own, or be
deemed to own by virtue of various attribution and constructive ownership
provisions of the Internal Revenue Code and Rule 13d-3 under the Securities
Exchange Act of 1934, shares of Class B Preferred Stock with a value in excess
of the amount by which (i) 8.7% (or 15% in the case of certain pension trusts
described in the Internal Revenue Code, investment companies registered under
the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of
all shares of capital stock of AIMCO exceeds (ii) the aggregate value of all
shares of capital stock of AIMCO, other than Class B Preferred Stock, that are
owned by such holder (the "Class B Preferred Ownership Limit"). The AIMCO Board
of Directors may waive such ownership limit if evidence satisfactory to the
AIMCO Board and AIMCO's tax counsel is presented that such ownership will not
then or in the future jeopardize AIMCO's status as a REIT. As a condition of
such waiver, the AIMCO Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class B Preferred Stock in
excess of the Class B Preferred Ownership Limit, or shares of Class B Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Internal Revenue Code, or which would otherwise result in
AIMCO failing to qualify as a REIT, are issued or transferred to any person,
such issuance or transfer will be null and void to the intended transferee, and
the intended transferee would acquire no rights to the stock. Shares of Class B
Preferred Stock transferred in excess of the Class B Preferred Ownership Limit
or other applicable limitations will automatically be transferred to a trust for
the exclusive benefit of one or more qualifying charitable organizations to be
designated by AIMCO. Shares transferred to such trust will remain outstanding,
and the trustee of the trust will have all voting and dividend rights pertaining
to such shares. The trustee of such trust may transfer such shares to a person
whose ownership of such shares does not violate the Class B Preferred Ownership
Limit or other applicable limitation. Upon a sale of such shares by the trustee,
the interest of the charitable beneficiary will terminate, and the sales
proceeds would be paid, first, to the original intended transferee, to the
extent of the lesser of (a) such transferee's original purchase price (or the
original market value of such shares if purportedly acquired by gift or devise)
and (b) the price received by
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the trustee, and, second, any remainder to the charitable beneficiary. In
addition, shares of stock held in such trust are purchasable by AIMCO for a
90-day period at a price equal to the lesser of the price paid for the stock by
the original intended transferee (or the original market value of such shares if
purportedly acquired by gift or devise) and the market price for the stock on
the date that AIMCO determines to purchase the stock. The 90-day period
commences on the date of the violative transfer or the date that the AIMCO Board
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class B Preferred Stock bear a
legend referring to the restrictions described above.
CLASS C PREFERRED STOCK
On December 23, 1997, AIMCO issued 2,400,000 shares of its 9% Class C
Preferred Stock in an underwritten public offering for net proceeds of
approximately $57.9 million. The Class C Preferred Stock (a) ranks prior to the
Common Stock, the Class E Preferred Stock and any other class or series of
capital stock of AIMCO if the holders of the Class C Preferred Stock are
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution, and winding-up in preference or priority to the
holders of shares of such class or series ("Class C Junior Stock"), (b) ranks on
parity with the Class B Preferred Stock, the Class D Preferred Stock, the Class
G Preferred Stock and the Class H Preferred Stock, and with any other class or
series of capital stock of AIMCO if the holders of such class of stock or series
and the Class C Preferred Stock shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class C Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series shall be entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding up in preference or priority to the holders of the Class C Preferred
Stock ("Class C Senior Stock").
Holders of Class C Preferred Stock are entitled to receive cash dividends
at the rate of 9% per annum of the $25 liquidation preference (equivalent to
$2.25 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year. Upon any liquidation, dissolution or
winding up of AIMCO, before payment or distribution by AIMCO shall be made to or
set apart for the holders of any shares of Class C Junior Stock, the holders of
Class C Preferred Stock shall be entitled to receive a liquidation preference of
$25 per share (the "Class C Liquidation Preference"), plus an amount equal to
all accumulated, accrued and unpaid dividends to the date of final distribution
to such holders; but such holders shall not be entitled to any further payment.
If proceeds available for distribution shall be insufficient to pay the
preference described above and any liquidating payments on any other shares of
any class or series of Class C Parity Stock, then such proceeds shall be
distributed among the holders of Class C Preferred Stock and any such other
Class C Parity Stock ratably in the same proportion as the respective amounts
that would be payable on such Class C Preferred Stock and any such other Class C
Parity Stock if all amounts payable thereon were paid in full.
On and after December 23, 2002, AIMCO may redeem shares of Class C
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class C Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class C Preferred Stock has no stated
maturity and will not be subject to any sinking find or mandatory redemption
provisions.
Holders of shares of Class C Preferred Stock have no voting rights, except
that if distributions on Class C Preferred Stock or any series or class of Class
C Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class C Preferred Stock (voting together as a single class with all
other shares of Class C Parity Stock which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class C Preferred Stock called for such purpose. The
affirmative vote of the holders of two thirds of the outstanding shares of Class
C Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class C Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class C
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
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There are ownership restrictions applicable to the Class C Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS D PREFERRED STOCK
On February 19, 1998, AIMCO issued 4,200,000 shares of its 8 3/4% Class D
Preferred Stock, in an underwritten public offering, for net proceeds of
approximately $101.5 million. The Class D Preferred Stock (a) ranks prior to the
Common Stock, the Class E Preferred Stock, and any other class or series of
capital stock of AIMCO if the holders of the Class D Preferred Stock are to be
entitled to the receipt of dividends of or amounts distributable upon
liquidation, dissolution, and winding-up in preference or priority to the
holders of shares of such class or series ("Class D Junior Stock"), (b) ranks on
parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class
G Preferred Stock and the Class H Preferred Stock, and with any other class or
series of capital stock of AIMCO if the holders of such class of stock or series
and the Class D Preferred Stock shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class D Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series shall be entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding up in preference or priority to the holders of the Class D Preferred
Stock ("Class D Senior Stock").
Holders of Class D Preferred Stock are entitled to receive cash dividends
at the rate of 8 3/4% per annum of the $25 liquidation preference (equivalent to
$2.1875 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year. Upon any liquidation, dissolution or
winding up of AIMCO, before payment or distribution by AIMCO shall be made to or
set apart for the holders of any shares of Class D Junior Stock, the holders of
Class D Preferred Stock shall be entitled to receive a liquidation preference of
$25 per share (the "Class D Liquidation Preference"), plus an amount equal to
all accumulated, accrued and unpaid dividends to the date of final distribution
to such holders; but such holders shall not be entitled to any further payment.
If proceeds available for distribution shall be insufficient to pay the
preference described above and any liquidating payments on any other shares of
any class or series of Class D Parity Stock, then such proceeds shall be
distributed among the holders of Class D Preferred Stock and any such other
Class D Parity Stock ratably in the same proportion as the respective amounts
that would be payable on such Class D Preferred Stock and any such other Class D
Parity Stock if all amounts payable thereon were paid in full.
On and after February 19, 2003, AIMCO may redeem shares of Class D
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class D Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class D Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class D Preferred Stock have no voting rights, except
that if distributions on Class D Preferred Stock or any series or class of Class
D Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class D Preferred Stock (voting together as a single class with all
other shares of Class D Parity Stock which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class D Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
D Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class D Preferred Stock, and to
approve the issuance of any capital stock that ranks senior to the Class D
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class D Preferred Stock
that are similar to those for the Class B Preferred Stock.
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CLASS E PREFERRED STOCK
On October 1, 1998, Insignia Financial Group, Inc. was merged into AIMCO.
As merger consideration, AIMCO will issue to former Insignia stockholders up to
8,945,921 shares of Class E Preferred Stock. The Class E Preferred Stock (a)
ranks prior to Common Stock, and any other class or series of capital stock of
AIMCO if holders of the Class E Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class E Junior Stock"), (b) ranks on a parity with any class or
series of capital stock of AIMCO if the holders of such class or series of stock
and the Class E Preferred Stock shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class E Parity Stock") and (c) ranks junior to the Class B Preferred Stock,
the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred
Stock, the Class H Preferred Stock and any other class or series of capital
stock of AIMCO if the holders of such class or series shall be entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding up in preference or priority to the holders of the Class E Preferred
Stock ("Class E Senior Stock").
On any date (each, a "Dividend Payment Date") on which cash dividends are
paid on the Class A Common Stock prior to the Class E Conversion Date (as
defined below), holders of Class E Preferred Stock are entitled to receive cash
dividends payable in an amount per share of Class E Preferred Stock equal to the
per share dividend payable on Class A Common Stock on such Dividend Payment
Date. Such dividends shall be cumulative from the date of original issue, and
shall be payable quarterly in arrears on the Dividend Payment Dates, commencing
on the first Dividend Payment Date after the date of original issue. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class E
Junior Stock, the holders of Class E Preferred Stock shall be entitled to
receive a liquidation preference of $1 per share plus the Special Dividend if
such dividend is unpaid on the date of the final distribution to such holders
(collectively, the "Class E Liquidation Preference"), and thereafter each share
of Class E Preferred Stock shall have the same rights with respect to assets of
AIMCO as one share of Class A Common Stock.
On or after the twentieth anniversary of the Effective Time, AIMCO may
redeem shares of Class E Preferred Stock, in whole or in part, at a cash
redemption price equal to the sum of (i) the greater of (A) the Current Market
Price (as defined below) of the Class A Common Stock on the date specified for
redemption by AIMCO in a notice sent to holders of Class E Preferred Stock (the
"Class E Call Date") or (B) the AIMCO Index Price, but determined without giving
effect to the limitation of $38.00 per share, plus (ii) all accrued and unpaid
dividends to the Call Date. The Class E Preferred Stock has no stated maturity
and will not be subject to any sinking fund or mandatory redemption provisions.
"Current Market Price" per share of Class A Common Stock on any date means
the average of the daily market prices of a share of Class A Common Stock for
the five consecutive trading days preceding such date. The market price for each
such day shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Class A Common Stock is not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Class A Common Stock is listed or admitted to
trading or, if the Class A Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted price, or if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Class A Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Class A Common Stock selected by the AIMCO Board.
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Holders of shares of Class E Preferred Stock are entitled to one-half
( 1/2) of one vote with respect to all matters in which holders of Class A
Common Stock are entitled to vote thereon. In addition, if any portion of the
Special Dividend has yet to be declared and paid to the holders of Class E
Preferred Stock on January 15, 1999, or if distributions on Class E Preferred
Stock or any series or class of Parity Stock shall be in arrears for six or more
quarterly periods, the number of directors constituting the AIMCO Board shall be
increased by two and the holders of Class E Preferred Stock (voting together as
a single class with all other shares of Class E Parity Stock which are entitled
to similar voting rights) will be entitled to vote for the election of such
additional directors. Such right shall continue until full cumulative dividends
for all past dividend periods on all shares of Preferred Stock, including any
shares of Class E Preferred Stock, have been paid or declared and set apart for
payment.
On any date which the Special Dividend, or any portion thereof, is paid
(which may be declared by the AIMCO Board in its sole discretion), the holders
of Class E Preferred Stock shall be entitled to receive an amount per share of
Class E Preferred Stock equal to the Special Dividend divided by the Series E
Conversion Ratio (as defined in the Insignia Merger Agreement). After January
15, 1999, if any portion of the Special Dividend or any other dividend has yet
to be declared and paid to the holders of Class E Preferred Stock, no dividends
may be declared or paid or set apart for payment by AIMCO on its Common Stock.
On the close of business on the day on which the Special Dividend (or any
remaining unpaid portion thereof) is paid to the holders of the Class E
Preferred Stock, each share of Class E Preferred Stock will be automatically
converted into one share of Class A Common Stock without any action on the part
of AIMCO or the holder of such share (the "Class E Conversion Date"). If AIMCO
at any time following the Effective Time pays a dividend or makes a
distribution, subdivides, combines, reclassifies, issues rights, options or
warrants or makes any other distribution in securities in relation to its
outstanding Class A Common Stock, then AIMCO will contemporaneously do the same
with respect to the Class E Preferred Stock.
CLASS G PREFERRED STOCK
On July 15, 1998, AIMCO issued 4,050,000 shares of its Class G Preferred
Stock, in an underwritten public offering for net proceeds of approximately
$98.0 million. The Class G Preferred Stock (a) ranks prior to the Common Stock,
the Class E Preferred Stock and any other class or series of capital Stock of
AIMCO, if the holders of the Class G Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class G Junior Stock"), (b) ranks on parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and
the Class H Preferred Stock and with any other class or series of capital Stock
of AIMCO, if the holders of such class of Stock or series and the Class G
Preferred Stock shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding-up in proportion to their
respective amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Class G Parity
Stock") and (c) ranks junior to any class or series of capital Stock of AIMCO if
the holders of such class or series shall be entitled to the receipt of
dividends or amounts distributable upon liquidation, dissolution or winding-up
in preference or priority to the holders of the Class G Preferred Stock ("Class
G Senior Stock").
Holders of Class G Preferred Stock are entitled to receive cash dividends
at the rate of 9 3/8% per annum of the $25 liquidation preference (equivalent to
$2.34375 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing October 15, 1998. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class G
Junior Stock, the holders of Class G Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class G Liquidation
Preference"), plus an amount equal to all accumulated, accrued and unpaid
dividends to the date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If proceeds available for
distribution shall be insufficient to pay the preference described above and any
liquidating payments on any other shares of any class or series of Class G
Parity Stock, then such proceeds shall be distributed among the holders of Class
G Preferred Stock and any such other Class G Parity Stock ratably in the same
proportion as the respective amount that would be payable on
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such Class G Preferred Stock and any such other Class G Parity Stock if all
amounts payable thereon were paid in full.
On and after July 15, 2008, AIMCO may redeem shares of Class G Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class G Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class G Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class G Preferred Stock have no voting rights, except
that if distributions on Class G Preferred Stock or any series or class of Class
G Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class G Preferred Stock (voting together as a single class with all
other shares of Class G Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class G Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
G Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class G Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class G
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class G Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS H PREFERRED STOCK
On August 11, 1998, AIMCO issued 2,000,000 shares of its Class H Preferred
Stock, in an underwritten public offering for net proceeds of approximately
$48.1 million. The Class H Preferred Stock (a) ranks prior to the Common Stock,
the Class E Preferred Stock and any other class or series of capital Stock of
AIMCO if the holders of the Class H Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class H Junior Stock"), (b) ranks on parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and
the Class G Preferred Stock, and with any other class or series of capital Stock
of AIMCO, if the holders of such class of Stock or series and the Class G
Preferred Stock shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding-up in proportion to their
respective amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Class H Parity
Stock") and (c) ranks junior to any class or series of capital Stock of AIMCO if
the holders of such class or series shall be entitled to the receipt of
dividends or amounts distributable upon liquidation, dissolution or winding-up
in preference or priority to the holders of the Class H Preferred Stock ("Class
H Senior Stock").
Holders of Class H Preferred Stock are entitled to receive cash dividends
at the rate of 9 1/2% per annum of the $25 liquidation preference (equivalent to
$2.375 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing October 15, 1998. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class H
Junior Stock, the holders of Class H Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class H Liquidation
Preference"), plus an amount equal to all accumulated, accrued and unpaid
dividends to the date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If proceeds available for
distribution shall be insufficient to pay the preference described above and any
liquidating payments on any other shares of any class or series of Class H
Parity Stock, then such proceeds shall be distributed among the holders of Class
H Preferred Stock and any such other Class H Parity Stock ratably in the same
proportion as the respective amount that would be payable on such Class H
Preferred Stock and any such other Class H Parity Stock if all amounts payable
thereon were paid in full.
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On and after August 14, 2003, AIMCO may redeem shares of Class H Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class H Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class H Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class H Preferred Stock have no voting rights, except
that if distributions on Class H Preferred Stock or any series or class of Class
H Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class H Preferred Stock (voting together as a single class with all
other shares of Class H Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class H Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
H Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class H Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class H
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class H Preferred Stock
that are similar to those for the Class B Preferred Stock.
DESCRIPTION OF COMMON STOCK
GENERAL
The Charter authorizes the issuance of up to 510,750,000 shares of capital
Stock with a par value of $.01 per share, of which 486,027,500 shares were
classified as Class A Common Stock and 262,500 shares were classified as Class B
Common Stock as of October 1, 1998. As of October 1, 1998, there were 47,982,057
shares of Class A Common Stock issued and outstanding. In addition, up to
150,000 shares of Class A Common Stock have been reserved for issuance under
AIMCO's 1994 Stock Option Plan, up to 500,000 shares of Class A Common Stock
have been reserved for issuance under AIMCO's 1996 Stock Award and Incentive
Plan, and up to 500,000 shares of Class A Common Stock have been reserved for
issuance under AIMCO's Non-Qualified Stock Option Plan. Under AIMCO's 1997 Stock
Award and Incentive Plan, AIMCO may issue up to 10% of the shares of Class A
Common Stock outstanding as of the first day of the fiscal year during which any
award is made, but in no event more than 20,000,000 shares of Class A Common
Stock. The Class A Common Stock is traded on the NYSE under the symbol "AIV."
BankBoston, N.A. serves as transfer agent and registrar of the Class A Common
Stock. As of October 1, 1998, the Charter authorized 750,000 shares of Class B
Preferred Stock, all of which were issued and outstanding; 2,760,000 shares of
Class C Preferred Stock, of which 2,400,000 shares were issued and outstanding;
4,600,000 shares of Class D Preferred Stock, of which 4,200,000 shares were
issued and outstanding; 10,000,000 shares of Class E Preferred Stock, of which
up to 8,945,921 shares are expected to be issued as consideration for the
Insignia merger; 4,050,000 shares of Class G Preferred Stock, all of which
shares were issued and outstanding; and 2,300,000 shares of Class H Preferred
Stock, of which 2,000,000 shares were issued and outstanding. In addition, the
Charter authorizes 262,500 shares of Class B Common Stock, which number is
subject to reduction by the number of shares of Class B Common Stock that have
been converted into shares of Class A Common Stock. As of August 31, 1998,
162,500 shares of Class B Common Stock were issued and outstanding. See
"-- Class B Common Stock."
CLASS A COMMON STOCK
Holders of the Class A Common Stock are entitled to receive dividends, when
and as declared by the AIMCO Board, out of funds legally available therefor. The
holders of shares of Class A Common Stock, upon any liquidation, dissolution or
winding up of AIMCO, are entitled to receive ratably any assets remaining after
payment in full of all liabilities of AIMCO and the liquidation preferences of
preferred stock. The shares of Class A Common Stock possess ordinary voting
rights for the election of Directors and in respect of other
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corporate matters, each share entitling the holder thereof to one vote. Holders
of shares of Class A Common Stock do not have cumulative voting rights in the
election of Directors, which means that holders of more than 50% of the shares
of Class A Common Stock voting for the election of Directors can elect all of
the Directors if they choose to do so and the holders of the remaining shares
cannot elect any Directors. Holders of shares of Class A Common Stock do not
have preemptive rights, which means they have no right to acquire any additional
shares of Class A Common Stock that may be issued by AIMCO at a subsequent date.
RESTRICTIONS ON TRANSFER
For AIMCO to qualify as a REIT under the Code, not more than 50% in value
of its outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year and the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
Because the AIMCO Board believes that it is essential for AIMCO to continue to
qualify as a REIT and to provide additional protection for AIMCO's stockholders
in the event of certain transactions, the AIMCO Board has adopted, and the
stockholders have approved, provisions of the Charter restricting the
acquisition of shares of Common Stock.
Subject to certain exceptions specified in the Charter, no holder may own,
or be deemed to own by virtue of various attribution and constructive ownership
provisions of the Internal Revenue Code and Rule 13d-3 under the Exchange Act,
more than 8.7% (or 15% in the case of certain pension trusts described in the
Internal Revenue Code, investment companies registered under the Investment
Company Act of 1940 and Mr. Considine) of the outstanding shares of Common
Stock. For purposes of calculating the amount of stock owned by a given
individual, the individual's Common Stock and Common OP Units are aggregated.
The AIMCO Board of Directors may waive the Ownership Limit if evidence
satisfactory to the AIMCO Board of Directors and AIMCO's tax counsel is
presented that such ownership will not then or in the future jeopardize AIMCO's
status as a REIT. However, in no event may such holder's direct or indirect
ownership of Common Stock exceed 9.8% of the total outstanding shares of Common
Stock. As a condition of such waiver, the AIMCO Board of Directors may require
opinions of counsel satisfactory to it and/or an undertaking from the applicant
with respect to preserving the REIT status of AIMCO. The foregoing restrictions
on transferability and ownership will not apply if the AIMCO Board of Directors
determines that it is no longer in the best interests of AIMCO to attempt to
qualify, or to continue to quality as a REIT and a resolution terminating
AIMCO's status as a REIT and amending the Charter to remove the foregoing
restrictions is duly adopted by the AIMCO Board of Directors and a majority of
AIMCO's stockholders. If shares of Common Stock in excess of the Ownership
Limit, or shares of Common Stock which would cause the REIT to be beneficially
owned by fewer than 100 persons, or which would result in AIMCO being "closely
held," within the meaning of Section 856(h) of the Internal Revenue Code, or
which would otherwise result in AIMCO failing to qualify as a REIT, are issued
or transferred to any person, such issuance or transfer shall be null and void
to the intended transferee, and the intended transferee would acquire no rights
to the stock. Shares of Common Stock transferred in excess of the Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Ownership Limit or other applicable limitation. Upon a sale of such shares
by the trustee, the interest of the charitable beneficiary will terminate, and
the sales proceeds would be paid, first, to the original intended transferee, to
the extent of the lesser of (a) such transferee's original purchase price (or
the original market value of such shares if purportedly acquired by gift or
devise) and (b) the price received by the trustee, and, second, any remainder to
the charitable beneficiary. In addition, shares of stock held in such trust are
purchasable by AIMCO for a 90-day period at a price equal to the lesser of the
price paid for the stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the stock on the date that AIMCO determines to purchase the
stock. The 90-day period commences on the date of the violative transfer or the
date that the AIMCO Board of Directors determines in good faith that a
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violative transfer has occurred, whichever is later. All certificates
representing shares of Common Stock bear a legend referring to the restrictions
described above.
All persons who own, directly or by virtue of the attribution provisions of
the Internal Revenue Code and Rule 13d-3 under the Securities Exchange Act of
1934, more than a specified percentage of the outstanding shares of Common Stock
must file a written statement or an affidavit with AIMCO containing the
information specified in the Charter within 30 days after January 1 of each
year. In addition, each stockholder shall upon demand be required to disclose to
AIMCO in writing such information with respect to the direct, indirect and
constructive ownership of shares as the AIMCO Board deems necessary to comply
with the provisions of the Internal Revenue Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
The ownership limitations may have the effect of precluding acquisition of
control of AIMCO by a third party unless the AIMCO Board of Directors determines
that maintenance of REIT status is no longer in the best interests of AIMCO.
CLASS B COMMON STOCK
In connection with the initial formation of AIMCO, Terry Considine, Peter
Kompaniez, Steven Ira and Robert P. Lacy (a former officer of AIMCO) acquired an
aggregate of 650,000 shares of Class B Common Stock. The Charter, which
initially authorized 750,000 shares of Class B Common Stock, was amended in June
1998 to authorize 262,500 shares of Class B Common Stock, of which 162,500
shares are issued and outstanding. The Class B Common Stock does not have voting
or dividend rights and, unless converted into Class A Common Stock, as described
below, is subject to repurchase by AIMCO as described below. As of December 31
of each of the years 1994 through 1998 (each, a "Year-End Testing Date"), a
number of the shares of Class B Common Stock outstanding as of such date (the
"Eligible Class B Shares") become eligible for automatic conversion (subject to
the Ownership Limit) into an equal number of shares of Class A Common Stock
(subject to adjustment upon the occurrence of certain events in respect of the
Class A Common Stock, including stock dividends, subdivisions, combinations and
reclassifications). Once Class B Common Stock has been converted into Class A
Common Stock, holders of such shares of converted Class A Common Stock will have
voting and dividend rights of Class A Common Stock generally. Once converted or
forfeited, the Class B Common Stock may not be reissued by AIMCO.
The Eligible Class B Shares convert to Class A Common Stock if (i) AIMCO's
Funds from Operations Per Share (as defined below) reaches certain annual and
cumulative growth targets and (ii) the average market price for a share of Class
A Common Stock for a 90 calendar day period beginning on any day on or after the
October 1 immediately preceding the relevant Year-End Testing Date equals or
exceeds a specified target price. "Funds from Operations Per Share" or "FFO Per
Share" means, for any period, (i) net income (loss), computed in accordance with
generally accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures, less any
preferred stock dividend payments, divided by (ii) the sum of (a) the number of
shares of the Class A Common Stock outstanding on the last day of such period
(excluding any shares of the Class A Common Stock into which shares of the Class
B Common Stock shall have been converted as a result of the conversion of shares
of the Class B Common Stock on the last day of such period) and (b) the number
of shares of the Class A Common Stock issuable to acquire units of limited
partnership that (x) may be tendered for redemption in any limited partnership
in which AIMCO serves as general partner and (y) are outstanding on the last day
of such period.
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Set forth below for each of the remaining Year-End Testing Dates is (i) the
number of shares of Class B Common Stock that become Eligible Class B Shares as
of such date, (ii) the annual FFO Per Share growth target (as a percentage
increase in FFO Per Share from the prior year), (iii) the cumulative FFO Per
Share growth target (in FFO Per Share) and (iv) the average market price target:
<TABLE>
<CAPTION>
ANNUAL FFO AVERAGE
ELIGIBLE PER SHARE CUMULATIVE FFO MARKET
CLASS B GROWTH PER SHARE PRICE
YEAR-END TESTING DATE SHARES(1) TARGET GROWTH TARGET TARGET
--------------------- --------- ---------- -------------- -------
<S> <C> <C> <C> <C>
December 31, 1998....................... 162,500 8.5% $2.760 $26.373
</TABLE>
- ---------------
(1) Assumes that only the shares of Class B Common Stock outstanding as of
December 31, 1997 remain outstanding until converted into shares of Class A
Common Stock.
If the annual growth target is not met for a particular Year-End Testing
Date, the Eligible Class B Shares for that date may be converted as of a
subsequent Year-End Testing Date if all of the targets are met for that
subsequent Year-End Testing Date. Any Class B Common Stock that has not been
converted into Class A Common Stock following December 31, 1998 will be subject
to repurchase by AIMCO at a price of $0.10 per share. Class B Common Stock is
also subject to automatic conversion upon the occurrence of certain events,
including a change of control (as defined in the Charter). The AIMCO Board may
increase the number of shares which are eligible for conversion as of any
Year-End Testing Date and may, under certain circumstances, accelerate the
conversion of outstanding Class B Common Stock at such time and in such amount
as it may determine appropriate.
All of the 65,000 shares of Class B Common Stock eligible for conversion as
of the December 31, 1994 Year-End Testing Date, all of the 130,000 shares of
Class B Common Stock eligible for conversion as of the December 31, 1995
Year-End Testing Date, all of the 130,000 shares of Class B Common Stock
eligible for conversion as of December 31, 1996 and all of the 162,500 shares of
Class B Common Stock eligible for conversion as of December 31, 1997, have been
converted into shares of Class A Common Stock. As of December 31, 1997, the
outstanding Class B Common Stock was held as follows: 93,428 shares by Mr.
Considine, 41,438 shares by Mr. Kompaniez, 13,821 shares by Mr. Ira and 13,813
shares by Mr. Lacy.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of the corporation, voting together
as a single voting group, and (b) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder or an affiliate of the Interested Stockholder with
whom the business combination is to be effected, unless, among other conditions,
the corporation's stockholders receive a minimum price (as defined in the MGCL)
for their shares and the consideration is received in cash or in the same form
as previously paid by the Interested Stockholder for its shares. For purposes of
determining whether a person is an Interested Stockholder, ownership of Common
OP Units will be treated as beneficial ownership of the shares of Common Stock
for which the Common OP Units may be redeemed. The business combination statute
could have the effect of discouraging offers to acquire AIMCO and of increasing
the difficulty of consummating any such offer. These provisions of the MGCL do
not apply, however, to business combinations that are approved or exempted by
the board of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The AIMCO Board has not passed
such a resolution.
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CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority or
(iii) a majority or more of all voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions. A person who has made or proposes to make a
control share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the corporation's board of directors to
call a special meeting of stockholders, to be held within 50 days of demand, to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an "acquiring person statement" as required by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights, as of the date of the last control share acquisition
or of any meeting of stockholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the appraisal
rights may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the corporation's
articles of incorporation or bylaws prior to the control share acquisition. No
such exemption appears in the Charter or in AIMCO's bylaws (the "Bylaws"). The
control share acquisition statute could have the effect of discouraging offers
to acquire AIMCO and of increasing the difficulty of consummating any such
offer.
DESCRIPTION OF OP UNITS
The following description sets forth certain general terms and provisions
of the OP Units and the AIMCO Operating Partnership Agreement. The AIMCO
Operating Partnership Agreement is included as Appendix B-1 hereto, and this
description is qualified in its entirety by the terms thereof.
GENERAL
The AIMCO Operating Partnership is a limited partnership organized pursuant
to the provisions of the Delaware Revised Uniform Limited Partnership Act (as
amended from time to time, or any successor to such statute, the "Delaware LP
Act") and upon the terms and subject to the conditions set forth in the AIMCO
Operating Partnership Agreement. AIMCO GP, a Delaware corporation and a wholly
owned subsidiary of AIMCO, is the sole general partner of the AIMCO Operating
Partnership. Another wholly owned subsidiary of AIMCO, the Special Limited
Partner, is a limited partner in the AIMCO Operating Partnership. The term of
the AIMCO Operating Partnership commenced on May 16, 1994, and will continue
until December 31, 2093, unless the AIMCO Operating Partnership is dissolved
sooner pursuant to the provisions of the AIMCO Operating Partnership Agreement
or as otherwise provided by law.
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PURPOSE AND BUSINESS
The purpose and nature of the AIMCO Operating Partnership is to conduct any
business, enterprise or activity permitted by or under the Delaware LP Act,
including, but not limited to, (i) to conduct the business of ownership,
construction, development and operation of multifamily rental apartment
communities, (ii) to enter into any partnership, joint venture, business trust
arrangement, limited liability company or other similar arrangement to engage in
any business permitted by or under the Delaware LP Act, or to own interests in
any entity engaged in any business permitted by or under the Delaware LP Act,
(iii) to conduct the business of providing property and asset management and
brokerage services, whether directly or through one or more partnerships, joint
ventures, subsidiaries, business trusts, limited liability companies or other
similar arrangements, and (iv) to do anything necessary or incidental to the
foregoing; provided, however, such business and arrangements and interests may
be limited to and conducted in such a manner as to permit AIMCO, in the sole and
absolute discretion of the AIMCO GP, at all times to be classified as a REIT.
MANAGEMENT BY THE AIMCO GP
Except as otherwise expressly provided in the AIMCO Operating Partnership
Agreement, all management powers over the business and affairs of the AIMCO
Operating Partnership are exclusively vested in the AIMCO GP. None of the
limited partners of the AIMCO Operating Partnership or any other person to whom
one or more OP Units have been transferred (each, an "Assignee") will take part
in the operations, management or control (within the meaning of the Delaware LP
Act) of the AIMCO Operating Partnership's business, transact any business in the
AIMCO Operating Partnership's name or have the power to sign documents for or
otherwise bind the AIMCO Operating Partnership. The AIMCO GP may not be removed
by the partners with or without cause, except with the consent of the AIMCO GP.
In addition to the powers granted a general partner of a limited partnership
under applicable law or that are granted to the AIMCO GP under any other
provision of the AIMCO Operating Partnership Agreement, the AIMCO GP, subject to
the other provisions of the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary or desirable by it to
conduct the business of the AIMCO Operating Partnership, to exercise all powers
of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO
Operating Partnership. The AIMCO Operating Partnership may incur debt or enter
into other similar credit, guarantee, financing or refinancing arrangements for
any purpose (including, without limitation, in connection with any acquisition
of properties) upon such terms as the AIMCO GP determines to be appropriate. The
AIMCO GP is authorized to execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating Partnership without any further
act, approval or vote of the partners.
Restrictions on AIMCO GP's Authority. The AIMCO GP may not take any action
in contravention of the AIMCO Operating Partnership Agreement. The AIMCO GP may
not, without the prior consent of the limited partners, undertake, on behalf of
the AIMCO Operating Partnership, any of the following actions or enter into any
transaction that would have the effect of such transactions: (i) except as
provided in the AIMCO Operating Partnership Agreement, amend, modify or
terminate the AIMCO Operating Partnership Agreement other than to reflect the
admission, substitution, termination or withdrawal of partners; (ii) make a
general assignment for the benefit of creditors or appoint or acquiesce in the
appointment of a custodian, receiver or trustee for all or any part of the
assets of the AIMCO Operating Partnership; (iii) institute any proceeding for
bankruptcy on behalf of the AIMCO Operating Partnership; or (iv) subject to
certain exceptions, approve or acquiesce to the transfer of the AIMCO Operating
Partnership interest of the AIMCO GP, or admit into the AIMCO Operating
Partnership any additional or successor general partners of the AIMCO Operating
Partnership.
Issuance of Additional OP Limited Partnership Interests. The AIMCO GP is
authorized to admit additional limited partners to the AIMCO Operating
Partnership from time to time, on terms and conditions and for such capital
contributions as may be established by the AIMCO GP in its reasonable
discretion. The net capital contribution need not be equal for all partners. No
action or consent by the limited partners is required in connection with the
admission of any additional limited partner. The AIMCO GP is expressly
authorized to cause the AIMCO Operating Partnership to issue additional
interests (i) upon the conversion, redemption or exchange of any debt, OP Units
or other securities issued by the AIMCO Operating
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Partnership, (ii) for less than fair market value, so long as the AIMCO GP
concludes in good faith that such issuance is in the best interests of the AIMCO
GP and the AIMCO Operating Partnership, and (iii) in connection with any merger
of any other entity into the AIMCO Operating Partnership if the applicable
merger agreement provides that persons are to receive interests in the AIMCO
Operating Partnership in exchange for their interests in the entity merging into
the AIMCO Operating Partnership. Subject to Delaware law, any additional
partnership interests may be issued in one or more classes, or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties as shall be
determined by the AIMCO GP, in its sole and absolute discretion without the
approval of any limited partners, and set forth in a written document thereafter
attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Without limiting the generality of the foregoing, the AIMCO GP shall have
authority to specify (a) the allocations of items of partnership income, gain,
loss, deduction and credit to each such class or series of partnership
interests; (b) the right of each such class or series of partnership interests
to share in distributions by the AIMCO Operating Partnership; (c) the rights of
each such class or series of partnership interests upon dissolution and
liquidation of the AIMCO Operating Partnership; (d) the voting rights, if any,
of each such class or series of partnership interests; and (e) the conversion,
redemption or exchange rights applicable to each such class or series of
partnership interests. Interests in the AIMCO Operating Partnership that have
distribution rights, or rights upon liquidation, winding up or dissolution, that
are superior or prior to the Common OP Units are Preferred OP Units. No person
will be admitted as an additional limited partner without the consent of the
AIMCO GP, which consent may be given or withheld in the AIMCO GP's sole and
absolute discretion.
MANAGEMENT LIABILITY AND INDEMNIFICATION
Notwithstanding anything to the contrary set forth in the AIMCO Operating
Partnership Agreement, the AIMCO GP is not liable to the AIMCO Operating
Partnership for losses sustained, liabilities incurred or benefits not derived
as a result of errors in judgment or mistakes of fact or law of any act or
omission if the AIMCO GP acted in good faith. The AIMCO Operating Partnership
Agreement provides for indemnification of AIMCO, or any director or officer of
AIMCO (in its capacity as the previous general partner of the AIMCO Operating
Partnership), the AIMCO GP, any officer or director of AIMCO GP or the AIMCO
Operating Partnership and such other persons as the AIMCO GP may designate from
and against all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees), fines, settlements and other amounts incurred in
connection with any actions relating to the operations of the AIMCO Operating
Partnership, as set forth in the AIMCO Operating Partnership Agreement. The
Delaware LP Act provides that subject to the standards and restrictions, if any,
set forth in its partnership agreement, a limited partnership may, and shall
have the power to, indemnify and hold harmless any partner or other person from
and against any and all claims and demands whatsoever. It is the position of the
SEC that indemnification of directors and officers for liabilities arising under
the Securities Act of 1933 is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act of 1933.
COMPENSATION AND FEES
The AIMCO GP does not receive compensation for its services as general
partner of the AIMCO Operating Partnership. However, the AIMCO GP is entitled to
payments, allocations and distributions in its capacity as general partner of
the AIMCO Operating Partnership. In addition, the AIMCO Operating Partnership is
responsible for all expenses incurred relating to the AIMCO Operating
Partnership's ownership of its assets and the operation of the AIMCO Operating
Partnership and reimburses the AIMCO GP for such expenses paid by the AIMCO GP.
The employees of the AIMCO Operating Partnership receive compensation for their
services.
FIDUCIARY RESPONSIBILITIES
The directors and officers of the AIMCO GP have fiduciary duties to manage
the AIMCO GP in a manner beneficial to AIMCO, as the sole stockholder of the
AIMCO GP. At the same time, the AIMCO GP, as general partner, has fiduciary
duties to manage the AIMCO Operating Partnership in a manner beneficial
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to the AIMCO Operating Partnership and its partners. The duties of the AIMCO GP,
as general partner, to the AIMCO Operating Partnership and its partners,
therefore, may come into conflict with the duties of the directors and officers
of the AIMCO GP to its sole stockholder, AIMCO.
Unless otherwise provided for in the relevant partnership agreement,
Delaware law generally requires a general partner of a Delaware limited
partnership to adhere to fiduciary duty standards under which it owes its
limited partners the highest duties of good faith, fairness and loyalty and
which generally prohibit such general partner from taking any action or engaging
in any transaction as to which it has a conflict of interest. The AIMCO
Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into,
on behalf of the AIMCO Operating Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various affiliates of
the AIMCO Operating Partnership and the AIMCO GP, on such terms as the AIMCO GP,
in its sole and absolute discretion, believes are advisable. The latitude given
in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving
conflicts of interest may significantly limit the ability of a limited partner
to challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP
believes, however, that such latitude is necessary and appropriate to enable it
to serve as the general partner of the AIMCO Operating Partnership without undue
risk of liability.
The AIMCO Operating Partnership Agreement expressly limits the liability of
the AIMCO GP by providing that the AIMCO GP, and its officers and directors will
not be liable or accountable in damages to the AIMCO Operating Partnership, the
limited partners or assignees for errors in judgment or mistakes of fact or law
or of any act or omission if the AIMCO GP or such director or officer acted in
good faith. In addition, the AIMCO Operating Partnership is required to
indemnify the AIMCO GP, its affiliates and their respective officers, directors,
employees and agents to the fullest extent permitted by applicable law, against
any and all losses, claims, damages, liabilities, joint or several, expenses,
judgments, fines and other actions incurred by the AIMCO GP or such other
persons, provided that the AIMCO Operating Partnership will not indemnify for
(i) willful misconduct or a knowing violation of the law or (ii) for any
transaction for which such person received an improper personal benefit in
violation or breach of any provision of the AIMCO Operating Partnership
Agreement.
The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
resolved in a court of law, and the AIMCO GP has not obtained an opinion of
counsel covering the provisions set forth in the AIMCO Operating Partnership
Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP
that would be in effect under common law were it not for the AIMCO Operating
Partnership Agreement. See "Risk Factors -- Risks Associated With an Investment
in OP Units -- Conflicts of Interest and Fiduciary Responsibility."
CLASS B PARTNERSHIP PREFERRED UNITS
On August 4, 1997, in connection with AIMCO's issuance of 750,000 shares of
Class B Preferred Stock, the AIMCO Operating Partnership issued 750,000 Class B
Partnership Preferred Units to the Special Limited Partner. The terms of the
Class B Partnership Preferred Units are substantially the same as the terms of
the Class B Preferred Stock. The Class B Partnership Preferred Units entitle the
Special Limited Partner to receive preferred quarterly cash distributions of
$1.78125 per unit or, if greater, the distributions then payable on Common OP
Units into which such Class B Partnership Preferred Units are convertible. On or
after August 4, 1998, upon the conversion of Class B Preferred Stock into Class
A Common Stock, a number of Class B Partnership Preferred Units equal to the
number of shares of Class B Preferred Stock so converted will be converted into
Common OP Units. The number of Common OP Units issued upon conversion of Class B
Partnership Preferred Units is determined by dividing the Class B Partnership
Preferred Unit's liquidation preference of $100 per unit by $30.45. In addition,
each Class B Partnership Preferred Unit has a priority in liquidation equal to
$100 per unit plus an amount equal to the accumulated, accrued and unpaid
dividends on a share of Class B Preferred Stock.
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CLASS C PARTNERSHIP PREFERRED UNITS
On December 23, 1997, in connection with AIMCO's issuance of 2,400,000
shares of Class C Preferred Stock, the AIMCO Operating Partnership issued
2,400,000 Class C Partnership Preferred Units to the Special Limited Partner.
The terms of the Class C Partnership Preferred Units are substantially the same
as the terms of the Class C Preferred Stock. The Class C Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of $0.5625 per unit ($2.25 per annum). In addition, each Class C
Partnership Preferred Unit has a priority in liquidation equal to $25 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class C Preferred Stock.
CLASS D PARTNERSHIP PREFERRED UNITS
On February 19, 1998, in connection with AIMCO's issuance of 4,200,000
shares of Class D Preferred Stock, the AIMCO Operating Partnership issued
4,200,000 Class D Partnership Preferred Units to the Special Limited Partner.
The terms of the Class D Partnership Preferred Units are substantially the same
as the terms of the Class D Preferred Stock. The Class D Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of $0.546875 ($2.1875 per annum). In addition, each Class D
Partnership Preferred Unit has a priority in liquidation equal to $25 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class D Preferred Stock.
CLASS E PARTNERSHIP PREFERRED UNITS
In connection with the Insignia Merger, AIMCO will issue up to 8,945,921
shares of Class E Preferred Stock. AIMCO will contribute assets formerly held by
Insignia to the AIMCO Operating Partnership in exchange for Class E Partnership
Preferred Units issued to the Special Limited Partner. The terms of the Class E
Partnership Preferred Units are substantially the same as the terms of the Class
E Preferred Stock. The Class E Partnership Preferred Units entitle the Special
Limited Partner to receive preferred quarterly distributions equal (on a per
unit basis) to the dividends paid on the AIMCO Class A Common Stock (on a per
share basis), and a special distribution of $50 million in the aggregate. Upon
payment of the special distribution, the Class E Partnership Preferred Units
automatically convert into an equal number of Common OP Units. Each Class E
Partnership Preferred Unit has a priority in liquidation equal to $1.00 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class E Preferred Stock.
CLASS F PARTNERSHIP PREFERRED UNITS
In connection with the Insignia Merger, AIMCO has assumed Insignia's
obligations under its 6 1/2% Convertible Subordinated Debentures due 2016 (the
"Convertible Debentures"), and the AIMCO Operating Partnership has issued Class
F Partnership Preferred Units to the Special Limited Partner that are
economically equivalent to the Convertible Debentures. The Convertible
Debentures bear interest at the rate of 6 1/2% per annum and are convertible
into shares of AIMCO Class E Preferred Stock at a price of $57.21. After the
conversion of Class E Preferred Stock into Class A Common Stock, the Convertible
Debentures will be convertible into shares of Class A Common Stock at a
conversion price that is adjusted for the $50 million dividend paid on the Class
E Preferred Stock. The Class F Partnership Preferred Units have a liquidation
value of $50 per Class F Partnership Preferred Unit, plus an amount per Class F
Partnership Unit equal to all accrued and unpaid interest on Convertible
Debentures in a principal amount of $50 to the date of final distribution to
holders of Class F Partnership Preferred Units (but such holders would not be
entitled to any further payment). Holders of Class F Partnership Preferred Units
are entitled to receive, on any date on which payments of interest or principal
are made on Convertible Debentures, distributions payable in cash in an amount
per Class F Partnership Preferred Unit equal to the interest and principal
payment made in respect of Convertible Debentures in a principal amount of $50
on such distribution date. Class F Partnership Preferred Units are redeemable by
the AIMCO Operating Partnership at any time that AIMCO redeems all or any of the
Convertible Debentures, in number equal to the quotient obtained by dividing the
aggregate principal amount of Convertible Debentures so redeemed by $50, at a
price per Class F Partnership Preferred Unit equal to the price paid by AIMCO to
redeem Convertible Debentures in a principal amount of $50. Upon any conversion
of Convertible Debentures into shares of AIMCO Class E Preferred Stock or Class
A Common
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Stock, a number of Class F Partnership Preferred Units equal to the quotient
obtained by dividing the aggregate principal amount of Convertible Debentures so
converted by $50 will be converted into Class E Partnership Preferred Units or
Partnership Common Units, respectively. The conversion ratio in effect from time
to time for such conversion of Class F Partnership Preferred Units into Class E
Partnership Preferred Units or Partnership Common Units will be equal to, and
automatically adjusted to reflect, the conversion ratio in effect from time to
time for the conversion of Convertible Debentures in a principal amount equal to
$50 into shares of AIMCO's Class E Preferred Stock or Class A Common Stock, as
the case may be. The Class F Partnership Preferred Units may be owned and held
solely by AIMCO GP or the Special Limited Partner.
CLASS G PARTNERSHIP PREFERRED UNITS
On July 15, 1998, in connection with AIMCO's issuance of 4,050,000 shares
of Class G Preferred Stock, the AIMCO Operating Partnership issued 4,050,000
Class G Partnership Preferred Units to the Special Limited Partner. The terms of
the Class G Partnership Preferred Units are substantially the same as the terms
of the Class G Preferred Stock. The Class G Partnership Preferred Units entitle
the Special Limited Partner to receive preferred quarterly cash distributions of
$0.5859375 ($2.34375 per annum). In addition, each Class G Partnership Preferred
Unit has a priority in liquidation equal to $25 per unit plus an amount equal to
the accumulated, accrued and unpaid dividends on a share of Class G Preferred
Stock.
CLASS H PARTNERSHIP PREFERRED UNITS
On August 11, 1998, in connection with AIMCO's issuance of 2,000,000 shares
of Class H Preferred Stock, the AIMCO Operating Partnership issued 2,000,000
Class H Partnership Preferred Units to the Special Limited Partner. The terms of
the Class H Partnership Preferred Units are substantially the same as the terms
of the Class H Preferred Stock. The Class H Partnership Preferred Units entitle
the Special Limited Partner to receive preferred quarterly cash distributions of
$0.59375 ($2.375 per annum). In addition, each Class H Partnership Preferred
Unit has a priority in liquidation equal to $25 per unit plus an amount equal to
the accumulated, accrued and unpaid dividends on a share of Class H Preferred
Stock.
HIGH PERFORMANCE UNITS
In January 1998, the AIMCO Operating Partnership sold an aggregate of
15,000 High Performance Units to a joint venture formed by fourteen of AIMCO's
officers and to three of AIMCO's independent directors, Messrs. Martin, Rhodes
and Smith. Holders of High Performance Units have no rights to receive
distributions or allocations of income or loss, or to redeem their High
Performance Units prior to the Valuation Date that is the earlier of (i) January
1, 2001, or (ii) the date on which a change of control (as defined in the AIMCO
Operating Partnership Agreement) occurs. If, on the Valuation Date, the
cumulative Total Return of the Class A Common Stock during the Measurement
Period exceeds the Minimum Return, then, on and after the Valuation Date,
holders of the 15,000 High Performance Units will be entitled to receive
distributions and allocations of income and loss from the AIMCO Operating
Partnership in the same amounts and at the same times (subject to certain
exceptions upon liquidation of the AIMCO Operating Partnership) as would holders
of a number of Common OP Units equal to the quotient obtained by dividing (i)
the product of (A) 15% of the amount by which the cumulative Total Return of the
Class A Common Stock over the Measurement Period exceeds the greater of 115% of
the peer group index or the Minimum Return, multiplied by (B) the weighted
average market value of AIMCO's equity capitalization (including Class A Common
Stock and Common OP Units) by (ii) the market value of one share of Class A
Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative
Total Return of the Class A Common Stock does not satisfy these criteria, then,
on and after the Valuation Date, holders of the 15,000 High Performance Units
will be entitled to receive distributions and allocations of income and loss
from the AIMCO Operating Partnership in the same amounts and at the same times
(subject to certain exceptions upon a liquidation of the AIMCO Operating
Partnership) as would holders of 150 Common OP Units. For purposes of
determining the market value of Class A Common Stock or Common OP Units as of
any date, the average closing price of the Class A Common Stock for the 20
trading days immediately preceding such date
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is used. It is expected that the Morgan Stanley REIT Index, a
capitalization-weighted index with dividends reinvested of the most actively
traded REITs, will be used as the peer group index for purposes of the High
Performance Units.
Upon the occurrence of a change of control, any holder of High Performance
Units may, subject to certain restrictions, require the AIMCO Operating
Partnership to redeem all or a portion of the High Performance Units held by
such party in exchange for a cash payment per unit equal to the market value of
a share of Class A Common Stock at the time of redemption. However, in the event
that any High Performance Units are tendered for redemption, the AIMCO Operating
Partnership's obligation to pay the redemption price is subject to the prior
right of AIMCO to acquire such High Performance Units in exchange for an equal
number of shares of Class A Common Stock (subject to certain adjustments).
DISTRIBUTIONS
Preferred OP Units. Holders of Preferred OP Units to be issued hereunder
will have rights to distributions as set forth in the Prospectus Supplement.
With respect to rights of holders of Class B Partnership Preferred Units, Class
C Partnership Preferred Units, Class D Partnership Preferred Units, Class E
Partnership Preferred Units, Class F Partnership Preferred Units, Class G
Partnership Preferred Units and Class H Partnership Preferred Units, see
"-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units;
- -- Class D Partnership Preferred Units; -- Class E Partnership Preferred Units;
- -- Class F Partnership Preferred Units; -- Class G Partnership Preferred Units;
and -- Class H Partnership Preferred Units."
High Performance Units. On and after the Valuation Date, holders of High
Performance Units may be entitled to receive distributions in accordance with
the terms of the High Performance Units. See "-- High Performance Units."
Common OP Units. Subject to the rights of holders of any outstanding
Preferred OP Units, the AIMCO Operating Partnership Agreement requires the AIMCO
GP to cause the AIMCO Operating Partnership to distribute quarterly all, or such
portion as the AIMCO GP may in its sole and absolute discretion determine, of
Available Cash (as defined in the AIMCO Operating Partnership Agreement)
generated by the AIMCO Operating Partnership during such quarter to the AIMCO
GP, the Special Limited Partner and the holders of Common OP Units ("Common OP
Unitholders") on the record date established by the AIMCO GP with respect to
such quarter, in accordance with their respective interests in the AIMCO
Operating Partnership on such record date. Holders of any other Preferred OP
Units issued in the future may have priority over the AIMCO GP, the Special
Limited Partner and holders of Common OP Units with respect to distributions of
Available Cash, distributions upon liquidation or other distributions.
Distributions payable with respect to any interest in the AIMCO Operating
Partnership that was not outstanding during the entire quarterly period in
respect of which any distribution is made will be prorated based on the portion
of the period that such interest was outstanding. The AIMCO GP in its sole and
absolute discretion may distribute to the OP Unitholders Available Cash on a
more frequent basis and provide for an appropriate record date. The AIMCO
Operating Partnership Agreement requires the AIMCO GP to take such reasonable
efforts, as determined by it in its sole and absolute discretion and consistent
with AIMCO's qualification as a REIT, to cause the AIMCO Operating Partnership
to distribute sufficient amounts to enable the AIMCO GP to transfer funds to
AIMCO and enable AIMCO to pay stockholder dividends that will (i) satisfy the
requirements (the "REIT Requirements") for qualifying as a REIT under the
Internal Revenue Code, and the Treasury Regulations and (ii) avoid any federal
income or excise tax liability of AIMCO.
No Common OP Unitholder has any right to demand or receive property other
than cash as provided in the AIMCO Operating Partnership Agreement. The AIMCO GP
may determine, in its sole and absolute discretion, to make a distribution in
kind of assets of the AIMCO Operating Partnership to the OP Unitholders, and
such assets will be distributed in such a fashion as to ensure that the fair
market value is distributed and allocated in accordance with the AIMCO Operating
Partnership Agreement.
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Subject to the rights of holders of any outstanding Preferred OP Units, net
proceeds from the sale or other disposition of all or substantially all of the
assets of the AIMCO Operating Partnership or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the assets of the AIMCO Operating Partnership (a
"Terminating Capital Transaction"), and any other cash received or reductions in
reserves made after commencement of the liquidation of the AIMCO Operating
Partnership, will be distributed to the OP Unitholders in accordance with the
AIMCO Operating Partnership Agreement.
The AIMCO Operating Partnership Agreement prohibits the AIMCO Operating
Partnership and the AIMCO GP, on behalf of the AIMCO Operating Partnership, from
making a distribution to any OP Unitholder on account of its interest in OP
Units if such distribution would violate Section 17-607 of the Delaware LP Act
or other applicable law.
ALLOCATIONS OF NET INCOME AND NET LOSS
Preferred OP Units. With respect to the Class B Partnership Preferred
Units, the Class C Partnership Preferred Units, the Class D Partnership
Preferred Units, the Class E Partnership Preferred Units, the Class F
Partnership Preferred Units, the Class G Partnership Preferred Units, the Class
H Partnership Preferred Units and any similar class of Preferred OP Unit that
may be subsequently issued, gross income and, if necessary, gain will be
allocated to the holders of the Preferred OP Units for any fiscal year (and, if
necessary, subsequent fiscal years) to the extent that the holders of the
Preferred OP Units receive a distribution on any Preferred OP Units (other than
an amount included in any redemption of Preferred OP Units). If any Preferred OP
Units are redeemed, for the fiscal year that includes such redemption (and, if
necessary, for subsequent fiscal years) (i) gross income and gain (in such
relative proportions as the AIMCO GP in its discretion will determine) will be
allocated to the holders of such class of Preferred OP Units to the extent that
the redemption amounts paid or payable with respect to the Preferred OP Units so
redeemed exceeds the aggregate capital contributions (net of liabilities assumed
or taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit
allocable to the Preferred OP Units so redeemed and (ii) deductions and losses
(in such relative proportions as the AIMCO GP in its discretion will determine)
will be allocated to the holders of such class of Preferred OP Units to the
extent that the aggregate Capital Contributions (net of liabilities assumed or
taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit
allocable to the Preferred OP Units so redeemed exceeds the redemption amount
paid or payable with respect to the Preferred OP Units so redeemed.
High Performance Units. On and after the Valuation Date, holders of High
Performance Units may be allocated income and loss in accordance with the terms
of the High Performance Units. See "-- High Performance Units."
Common OP Units. Net Income (as defined in the AIMCO Operating Partnership
Agreement) and Net Loss (as defined in the AIMCO Operating Partnership
Agreement) of the AIMCO Operating Partnership will be determined and allocated
with respect to each fiscal year of the AIMCO Operating Partnership as of the
end of each such year. Except as otherwise provided in the AIMCO Operating
Partnership Agreement, an allocation to a Common OP Unitholder of a share of Net
Income or Net Loss will be treated as an allocation of the same share of each
item of income, gain, loss or deduction that is taken into account in computing
Net Income or Net Loss. Except as otherwise provided in the AIMCO Operating
Partnership Agreement and subject to the terms of any outstanding Partnership
Preferred Units, Net Income and Net Loss will be allocated to the holders of
Common OP Units in accordance with their respective Common OP Units at the end
of each fiscal year. The AIMCO Operating Partnership Agreement contains
provisions for special allocations intended to comply with certain regulatory
requirements, including the requirements of Treasury Regulations Sections
1.704-1(b) and 1.704-2. Except as otherwise provided in the AIMCO Operating
Partnership Agreement and subject to the terms of any outstanding Preferred OP
Units, for income tax purposes under the Internal Revenue Code and the Treasury
Regulations, each Partnership item of income, gain, loss and deduction will be
allocated among the Common OP Unitholders in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to the
AIMCO Operating Partnership Agreement.
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WITHHOLDING
The AIMCO Operating Partnership is authorized to withhold from or pay on
behalf of or with respect to each limited partner any amount of federal, state,
local or foreign taxes that the AIMCO GP determines that the AIMCO Operating
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such limited partner pursuant to the AIMCO
Operating Partnership Agreement.
RETURN OF CAPITAL
No limited partner is entitled to interest on its capital contribution or
on such limited partner's capital account. Except (i) pursuant to the rights of
redemption set forth in the AIMCO Operating Partnership Agreement, (ii) as
provided by law, or (iii) pursuant to the terms of any outstanding Preferred OP
Units, no limited partner has any right to demand or receive the withdrawal or
return of its capital contribution from the AIMCO Operating Partnership, except
to the extent of distributions made pursuant to the AIMCO Operating Partnership
Agreement or upon termination of the AIMCO Operating Partnership. Except to the
extent otherwise expressly provided in the AIMCO Operating Partnership Agreement
and subject to the terms of any outstanding Preferred OP Units, no limited
partner or assignee will have priority over any other limited partner or
assignee either as to the return of capital contributions or as to profits,
losses or distributions.
REDEMPTION RIGHTS
Preferred OP Units. Holders of Preferred OP Units to be issued hereunder
will have rights to redemption as set forth in the applicable Prospectus
Supplement. With respect to rights of holders of Class B Partnership Preferred
Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units,
Class E Partnership Preferred Units, Class F Partnership Preferred Units, Class
G Partnership Preferred Units and Class H Partnership Preferred Units, see
"-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units;
- -- Class D Partnership Preferred Units; -- Class E Partnership Preferred Units;
- -- Class F Partnership Preferred Units; and -- Class H Partnership Preferred
Units."
High Performance Units. In the event of a change of control, holders of
High Performance Units will have the same redemption rights as holders of Common
OP Units. See "-- High Performance Units."
Common OP Units. After the first anniversary of becoming a holder of Common
OP Units, each Common OP Unitholder and certain assignees have the right,
subject to the terms and conditions set forth in the AIMCO Operating Partnership
Agreement, to require the AIMCO Operating Partnership to redeem all or a portion
of the Common OP Units held by such party in exchange for a cash amount based on
the value of shares of Class A Common Stock. The AIMCO Operating Partnership's
obligation to effect a redemption, however, will not arise or be binding against
the AIMCO Operating Partnership until and unless AIMCO declines or fails to
exercise its right to acquire such Common OP Units pursuant to the AIMCO
Operating Partnership Agreement.
On or before the close of business on the fifth business day after a Common
OP Unitholder gives the AIMCO GP a notice of redemption, the AIMCO GP may, in
its sole and absolute discretion but subject to the restrictions on the
ownership of Class A Common Stock imposed under the AIMCO Charter and the
transfer restrictions and other limitations thereof, elect to cause AIMCO to
acquire some or all of the tendered Common OP Units from the tendering party in
exchange for Class A Common Stock, based on an exchange ratio of one share of
Class A Common Stock for each Common OP Unit, subject to adjustment as provided
in the AIMCO Operating Partnership Agreement.
PARTNERSHIP RIGHT TO CALL COMMON OP UNITS
Notwithstanding any other provision of the AIMCO Operating Partnership
Agreement, on and after the date on which the aggregate percentage interests of
the limited partners, other than the Special Limited Partner, are less than one
percent (1%), the AIMCO Operating Partnership will have the right, but not the
obligation, from time to time and at any time to redeem any and all outstanding
limited partner interests (other than the Special Limited Partner's interest) in
the AIMCO Operating Partnership by treating any
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limited partner as if such limited partner had tendered for redemption pursuant
to the AIMCO Operating Partnership Agreement the amount of Common OP Units
specified by the AIMCO GP, in its sole and absolute discretion, by notice to the
limited partner.
TRANSFERS AND WITHDRAWALS
Restrictions on Transfer. The AIMCO Operating Partnership Agreement
restricts the transferability of OP Units. Any transfer or purported transfer of
an OP Unit not made in accordance with the AIMCO Operating Partnership Agreement
will be null and void ab initio. Until the expiration of one year from the date
on which a limited partner acquired OP Units, subject to certain exceptions,
such limited partner may not transfer all or any portion of its OP Units to any
transferee without the consent of the AIMCO GP, which consent may be withheld in
its sole and absolute discretion. After the expiration of one year from the date
on which a limited partner acquired OP Units, such limited partner has the right
to transfer all or any portion of its OP Units to any person, subject to the
satisfaction of certain conditions specified in the AIMCO Operating Partnership
Agreement, including the AIMCO GP's right of first refusal. It is a condition to
any transfer (regardless of whether such transfer is effected before or after
the one year holding period) that the transferee assumes by operation of law or
express agreement all of the obligations of the transferor limited partner under
the AIMCO Operating Partnership Agreement with respect to such OP Units, and no
such transfer (other than pursuant to a statutory merger or consolidation
wherein all obligations and liabilities of the transferor partner are assumed by
a successor corporation by operation of law) will relieve the transferor partner
of its obligations under the AIMCO Operating Partnership Agreement without the
approval of the AIMCO GP, in its sole and absolute discretion.
In connection with any transfer of OP Units, the AIMCO GP will have the
right to receive an opinion of counsel reasonably satisfactory to it to the
effect that the proposed transfer may be effected without registration under the
Securities Act of 1933 and will not otherwise violate any federal or state
securities laws or regulations applicable to the AIMCO Operating Partnership or
the OP Units transferred.
No transfer by a limited partner of its OP Units (including any redemption
or any acquisition of OP Units by the AIMCO GP or by the AIMCO Operating
Partnership) may be made to any person if (i) in the opinion of legal counsel
for the AIMCO Operating Partnership, it would result in the AIMCO Operating
Partnership being treated as an association taxable as a corporation, or (ii)
such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Internal Revenue Code.
Substituted Limited Partners. No limited partner will have the right to
substitute a transferee as a limited partner in its place. A transferee of the
interest of a limited partner may be admitted as a substituted limited partner
only with the consent of the AIMCO GP, which consent may be given or withheld by
the AIMCO GP in its sole and absolute discretion. If the AIMCO GP, in its sole
and absolute discretion, does not consent to the admission of any permitted
transferee as a substituted limited partner, such transferee will be considered
an assignee for purposes of the AIMCO Operating Partnership Agreement. An
assignee will be entitled to all the rights of an assignee of a limited
partnership interest under the Delaware LP Act, including the right to receive
distributions from the AIMCO Operating Partnership and the share of Net Income,
Net Losses and other items of income, gain, loss, deduction and credit of the
AIMCO Operating Partnership attributable to the OP Units assigned to such
transferee and the rights to transfer the OP Units provided in the AIMCO
Operating Partnership Agreement, but will not be deemed to be a limited partner
for any other purpose under the AIMCO Operating Partnership Agreement, and will
not be entitled to effect a consent or vote with respect to such OP Units on any
matter presented to the limited partners for approval (such right to consent or
vote, to the extent provided in this Agreement or under the Delaware LP Act,
fully remaining with the transferor limited partner).
Withdrawals. No limited partner may withdraw from the AIMCO Operating
Partnership other than as a result of a permitted transfer of all of such
limited partner's OP Units in accordance with the AIMCO Operating Partnership
Agreement, with respect to which the transferee becomes a substituted limited
partner, or pursuant to a redemption (or acquisition by AIMCO) of all of such
limited partner's OP Units.
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Restrictions on the General Partner. The AIMCO GP may not transfer any of
its general partner interest or withdraw from the AIMCO Operating Partnership
unless (i) the limited partners consent or (ii) immediately after a merger of
the AIMCO GP into another entity, substantially all of the assets of the
surviving entity, other than the general partnership interest in the AIMCO
Operating Partnership held by the AIMCO GP, are contributed to the AIMCO
Operating Partnership as a capital contribution in exchange for OP Units.
ISSUANCE OF CAPITAL STOCK BY AIMCO
Pursuant to the AIMCO Operating Partnership Agreement, upon the issuance of
its capital stock, AIMCO is generally obligated to contribute the cash proceeds
or other consideration received from such issuance to the AIMCO Operating
Partnership in exchange for, in the case of Class A Common Stock, Common OP
Units, or in the case of an issuance of Preferred Stock, Preferred OP Units with
designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of such Preferred Stock.
DILUTION
The AIMCO GP has the power, without the consent of the limited partners, to
cause the AIMCO Operating Partnership to issue additional Common OP Units and
Preferred OP Units. Any such issuance may dilute the interests of existing OP
Unitholders. In addition, the terms of the Preferred OP Units entitle the
holders thereof to receive preferential distributions of cash and a priority in
liquidation, as well as certain class voting rights.
AMENDMENT OF THE AIMCO OPERATING PARTNERSHIP AGREEMENT
By the AIMCO GP Without the Consent of the Limited Partners. The AIMCO GP
has the power, without the consent of the limited partners, to amend the AIMCO
Operating Partnership Agreement as may be required to facilitate or implement
any of the following purposes: (1) to add to the obligations of the AIMCO GP or
surrender any right or power granted to the AIMCO GP or any affiliate of the
AIMCO GP for the benefit of the limited partners; (2) to reflect the admission,
substitution or withdrawal of partners or the termination of the AIMCO Operating
Partnership in accordance with the AIMCO Operating Partnership Agreement; (3) to
reflect a change that is of an inconsequential nature and does not adversely
affect the limited partners in any material respect, or to cure any ambiguity,
correct or supplement any provision in the AIMCO Operating Partnership Agreement
not inconsistent with law or with other provisions, or make other changes with
respect to matters arising under the AIMCO Operating Partnership Agreement that
will not be inconsistent with law or with the provisions of the AIMCO Operating
Partnership Agreement; (4) to satisfy any requirements, conditions or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; (5) to reflect such changes
as are reasonably necessary for AIMCO to maintain its status as a REIT; and (6)
to modify the manner in which capital accounts are computed (but only to the
extent set forth in the definition of "Capital Account" in the AIMCO Operating
Partnership Agreement or contemplated by the Internal Revenue Code or the
Treasury Regulations).
With the Consent of the Limited Partners. With the exception of the
circumstances described above whereby the AIMCO GP may, without the consent of
the limited partners, amendments to the AIMCO Operating Partnership Agreement
require the limited partners' consent. Amendments to the AIMCO Operating
Partnership Agreement may be proposed by the AIMCO GP or by limited partners
holding a majority of the outstanding Common OP Units, excluding the Special
Limited Partner (a "Majority in Interest"). Following such proposal, the AIMCO
GP will submit any proposed amendment to the limited partners. The AIMCO GP will
seek the written consent of the limited partners on the proposed amendment or
will call a meeting to vote thereon and to transact any other business that the
AIMCO GP may deem appropriate. For purposes of obtaining a written consent, the
AIMCO GP may require a written response within a reasonable specified time, but
not less than fifteen (15) days, and failure to respond in such time period
shall constitute a consent that is consistent with the AIMCO GP's recommendation
with respect to the
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proposal, provided, however, that an action shall become effective at such time
as requisite consents are received even if prior to such specified time.
PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS
Meetings of the partners may be called by the AIMCO GP and will be called
upon the receipt by the AIMCO GP of a written request by a Majority in Interest
of the limited partners. Notice of any such meeting will be given to all
partners not less than seven (7) days nor more than thirty (30) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Each meeting of partners will be conducted by the AIMCO GP or such
other person as the AIMCO GP may appoint pursuant to such rules for the conduct
of the meeting as the AIMCO GP or such other person deems appropriate in its
sole and absolute discretion. Any action required or permitted to be taken at a
meeting of the partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by partners holding a majority of
outstanding Common OP Units (or such other percentage as is expressly required
by the AIMCO Operating Partnership Agreement for the action in question). Such
consent may be in one instrument or in several instruments, and shall have the
same force and effect as a vote of the partners holding a majority of
outstanding Common OP Units (or such other percentage as is expressly required
by the AIMCO Operating Partnership Agreement for the action in question). Such
consent shall be filed with the AIMCO GP. An action so taken shall be deemed to
have been taken at a meeting held on the effective date so certified.
RECORDS AND ACCOUNTING; FISCAL YEAR
The AIMCO Operating Partnership Agreement requires the AIMCO GP to keep or
cause to be kept at the principal office of the AIMCO Operating Partnership
those records and documents required to be maintained by the Delaware LP Act and
other books and records deemed by the AIMCO GP to be appropriate with respect to
the AIMCO Operating Partnership's business. The books of the AIMCO Operating
Partnership will be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles, or on
such other basis as the AIMCO GP determines to be necessary or appropriate. To
the extent permitted by sound accounting practices and principles, the AIMCO
Operating Partnership, the AIMCO GP and AIMCO may operate with integrated or
consolidated accounting records, operations and principles. The fiscal year of
the AIMCO Operating Partnership is the calendar year.
REPORTS
As soon as practicable, but in no event later than one hundred five (105)
days after the close of each calendar quarter and each fiscal year, the AIMCO GP
will cause to be mailed to each limited partner, of record as of the last day of
the calendar quarter or as of the close of the fiscal year, as the case may be,
a report containing financial statements of the AIMCO Operating Partnership, or
of AIMCO if such statements are prepared solely on a consolidated basis with
AIMCO, for such calendar quarter or fiscal year, as the case may be, presented
in accordance with generally accepted accounting principles, and such other
information as may be required by applicable law or regulation or as the AIMCO
GP determines to be appropriate. Statements included in quarterly reports are
not audited. Statements included in annual reports are audited by a nationally
recognized firm of independent public accountants selected by the AIMCO GP.
TAX MATTERS
The AIMCO GP is the "tax matters partner" of the AIMCO Operating
Partnership for federal income tax purposes. The tax matters partner is
authorized, but not required, to take certain actions on behalf of the AIMCO
Operating Partnership with respect to tax matters. In addition, the AIMCO GP
will arrange for the preparation and timely filing of all returns with respect
to the AIMCO Operating Partnership's income, gains, deductions, losses and other
items required of the AIMCO Operating Partnership for federal and state income
tax purposes and will use all reasonable effort to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by limited partners for federal and state income tax reporting
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purposes. The limited partners will promptly provide the AIMCO GP with such
information as may be reasonably requested by the AIMCO GP from time to time.
DISSOLUTION AND WINDING UP
Dissolution. The AIMCO Operating Partnership will dissolve, and its affairs
will be wound up, upon the first to occur of any of the following (each a
"Liquidating Event") (i) December 31, 2093; (ii) an event of withdrawal, as
defined in the Delaware LP Act (including, without limitation, bankruptcy), of
the sole general partner unless, within ninety (90) days after the withdrawal, a
"majority in interest" (as such phrase is used in Section 17-801(3) of the
Delaware LP Act) of the remaining partners agree in writing, in their sole and
absolute discretion, to continue the business of the AIMCO Operating Partnership
and to the appointment, effective as of the date of withdrawal, of a successor
general partner; (iii) an election to dissolve the AIMCO Operating Partnership
made by the general partner in its sole and absolute discretion, with or without
the consent of the limited partners; (iv) entry of a decree of judicial
dissolution of the AIMCO Operating Partnership pursuant to the provisions of the
Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction; or
(vi) the redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special
Limited Partner) of all Common OP Units other than Common OP Units held by the
AIMCO GP or the Special Limited Partner.
Winding Up. Upon the occurrence of a Liquidating Event, the AIMCO Operating
Partnership will continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of its
creditors and partners. The AIMCO GP (or, in the event that there is no
remaining AIMCO GP or the AIMCO GP has dissolved, become bankrupt within the
meaning of the Delaware LP Act or ceased to operate, any person elected by a
Majority in Interest of the limited partners) will be responsible for overseeing
the winding up and dissolution of the AIMCO Operating Partnership and will take
full account of the AIMCO Operating Partnership's liabilities and property, and
the AIMCO Operating Partnership's property will be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the AIMCO GP, include Class A Common
Stock) will be applied and distributed in the following order: (i) first, to the
satisfaction of all of the AIMCO Operating Partnership's debts and liabilities
to creditors other than the partners and their assignees (whether by payment or
the making of reasonable provision for payment thereof); (ii) second, to the
satisfaction of all the AIMCO Operating Partnership's debts and liabilities to
the general partner (whether by payment or the making of reasonable provision
for payment thereof), including, but not limited to, amounts due as
reimbursements under the AIMCO Operating Partnership Agreement; (ii) third, to
the satisfaction of all of the AIMCO Operating Partnership's debts and
liabilities to the other partners and any assignees (whether by payment or the
making of reasonable provision for payment thereof); (iv) fourth, to the
satisfaction of all liquidation preferences of outstanding Preferred OP Units,
if any, and (v) the balance, if any, to the AIMCO GP, the limited partners and
any assignees in accordance with and in proportion to their positive capital
account balances, after giving effect to all contributions, distributions and
allocations for all periods.
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COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO
Generally, the nature of an investment in the Common OP Units is
substantially equivalent economically to an investment in the Class A Common
Stock. The AIMCO Operating Partnership makes quarterly distributions to holders
of Common OP Units (on a per unit basis) that generally are equal to the
dividends paid on the Class A Common Stock (on a per share basis). However, such
distributions will not necessarily continue to be equal to such dividends.
Common OP Unitholders generally share in the risks and rewards of ownership in
the enterprise being conducted by AIMCO (through the AIMCO Operating
Partnership). However, there are some differences between ownership of Common OP
Units and ownership of Class A Common Stock, some of which may be material to
investors.
The information below highlights a number of the significant differences
between the AIMCO Operating Partnership and AIMCO relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and federal income
taxation, and compares certain legal rights associated with the ownership of
Common OP Units and Class A Common Stock, respectively. These comparisons are
intended to assist OP Unitholders in understanding how their investment will be
changed if their Common OP Units are exchanged for Class A Common Stock. COMMON
OP UNITHOLDERS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE
REGISTRATION STATEMENT AND THE EXHIBITS THERETO OF WHICH THIS PROSPECTUS IS A
PART AND ANY APPLICABLE PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT THE COMPANY.
AIMCO OPERATING PARTNERSHIP AIMCO
Form of Organization and Assets Owned
<TABLE>
<S> <C>
The AIMCO Operating Partnership is organized as a AIMCO is a Maryland corporation. AIMCO has elected to
Delaware limited partnership. The AIMCO Operating be taxed as a REIT under the Internal Revenue Code,
Partnership owns interests (either directly or through commencing with its taxable year ended December 31,
subsidiaries) in the apartment properties. 1994, and intends to maintain its election as a REIT.
With certain limited exceptions, AIMCO's only
significant assets are its equity interests in the
AIMCO GP and the Special Limited Partner, which in turn
collectively hold a controlling interest in the AIMCO
Operating Partnership.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
The term of the AIMCO Operating Partnership continues AIMCO has a perpetual existence, unless liquidated or
until December 31, 2093, unless the AIMCO Operating dissolved.
Partnership is dissolved sooner pursuant to the terms
of the AIMCO Operating Partnership Agreement or as
provided by law. See "Description of OP
Units -- General" and "Description of OP
Units -- Dissolution and Winding Up."
</TABLE>
Purpose and Permitted Activities/Investments
<TABLE>
<S> <C>
The purpose of the AIMCO Operating Partnership is to Under its Charter, AIMCO may engage in any lawful
conduct any business that may be lawfully conducted by activity permitted to be engaged in by a Maryland
a limited partnership organized pursuant to the corporation pursuant to Maryland law. The Charter
Delaware LP Act, provided that such business is to be prohibits the AIMCO Board of Directors from taking any
conducted in a manner that permits AIMCO to be action to terminate AIMCO's status as a REIT, unless
qualified as a REIT, unless AIMCO ceases to qualify as the AIMCO Board of Directors recommends such action and
a REIT. The AIMCO Operating Partnership is authorized the holders of a majority of the shares entitled to
to perform any and all acts for the furtherance of the vote on such matter approve such action. The Internal
purposes and business of the AIMCO Operating Revenue Code defines a REIT as a corporation, trust or
Partnership, provided that the AIMCO Operating association (1) that is managed by one or more trustees
Partnership may not take, or refrain from taking, any or directors; (2) the beneficial ownership of which is
action which, in the judgment of the AIMCO GP could (i) evidenced by transferable shares, or by transferable
adversely affect the ability of AIMCO to continue to certificates of beneficial interest; (3) which would be
qualify as a REIT, (ii) subject AIMCO to certain income taxable as a domestic corporation, but for the special
and excise taxes, or (iii) violate any law or Internal Revenue Code provisions applicable to REITs;
regulation of any governmental body or agency (unless (4) that is neither a financial institution nor an
such action, or inaction, is specifically consented to insurance company subject to certain provisions of the
by AIMCO). Subject to the foregoing, Internal Revenue Code; (5) the beneficial
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
the AIMCO Operating Partnership may invest in or enter ownership of which is held by 100 or more persons; (6)
into partnerships, joint ventures, or similar in which, during the last half of each taxable year,
arrangements not more than 50% in value of the outstanding stock is
owned, directly or indirectly, by five or fewer
individuals (as defined in the Internal Revenue Code to
include certain entities); and (7) which meets certain
other tests described in this Prospectus (including
with respect to the nature of its income and assets).
See "Federal Income Taxation of AIMCO and AIMCO
Stockholders -- General." The Internal Revenue Code
provides that conditions (1) through (4) must be met
during the entire taxable year, and that condition (5)
must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a
taxable year of less than 12 months. The Charter also
contains certain restrictions regarding transfers of
its shares, which provisions are intended to assist
AIMCO in satisfying the share ownership requirements
described in conditions (5) and (6) above. See "Federal
Income Taxation of AIMCO and AIMCO
Stockholders -- General."
Substantially all of the operations of AIMCO are
conducted through the AIMCO Operating Partnership and
its subsidiaries. Through its controlling interests in
the AIMCO Operating Partnership and other limited
partnerships and limited liability companies, AIMCO
owns and controls interests in numerous multi-family
rental apartment properties.
</TABLE>
Additional Equity
<TABLE>
<S> <C>
The AIMCO GP is authorized to issue additional Under the Charter, the AIMCO Board of Directors has the
partnership interests in the AIMCO Operating authority to classify and reclassify any of its
Partnership for any partnership purpose from time to unissued capital stock into shares of Preferred Stock
time to the limited partners and to other persons, and by setting or changing in any one or more respects the
to admit such other persons as additional limited preferences, conversion or other rights, voting powers,
partners, on terms and conditions and for such capital restrictions, limitations as to dividends,
contributions as may be established by the AIMCO GP in qualifications or terms or conditions of redemption of
its sole discretion. The net capital contribution need such shares of capital stock including, but not limited
not be equal for all partners. No action or consent by to, ownership restrictions consistent with the
the limited partners is required in connection with the Ownership Limit with respect to each series or class of
admission of any additional limited partner. See capital stock, and the number of shares constituting
"Description of OP Units -- Management by the AIMCO each series or class, and to increase or decrease the
GP." Subject to Delaware law, any additional partner- number of shares of any such series or class, to the
ship interests may be issued in one or more classes, or extent permitted by the MGCL. AIMCO is authorized to
one or more series of any of such classes, with such issue, in its discretion, additional equity securities
designations, preferences and relative, participating, including Class A Common Stock or Preferred Stock;
optional or other special rights, powers and duties as provided, however, that the total number of equity
shall be determined by the AIMCO GP, in its sole and securities outstanding may not exceed the total number
absolute discretion without the approval of any limited of authorized shares set forth in the Charter (i.e.,
partner, and set forth in a written document thereafter not more than 510,750,000 shares of capital stock).
attached to and made an exhibit to the AIMCO Operating Additionally, AIMCO may issue additional Class A Common
Partnership Agreement. Stock upon exchange of Common OP Units for Class A
Common Stock, and upon exercise of options granted
pursuant to AIMCO's stock incentive plan. Pursuant to
the AIMCO Operating Partnership Agreement, upon the
issuance of its capital stock, AIMCO is generally
obligated to contribute the cash proceeds or other
consideration received from such issuance to the AIMCO
Operating Partnership in exchange for, in the case of
Class A Common Stock, Common OP Units, or in the case
of an issuance of Preferred Stock, Preferred OP Units
with designations, preferences and other rights, terms
and provisions that are substantially the same as the
designations, preferences and other rights, terms and
provisions of such Preferred Stock. See "Description of
OP Units -- Issuance of Class A Common Stock by AIMCO."
Neither AIMCO's Charter nor its By-Laws impose any
restrictions upon dealings between AIMCO and its
directors, officers and affiliates. Under Maryland law,
however, material facts of the
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
relationship, the transaction and the conflict of
interest must (i) be disclosed to the Board of
Directors and approved by the affirmative vote of a
majority of the disinterested directors; or (ii) be
disclosed to the stockholders and approved by the
affirmative vote of a majority of the disinterested
stockholders or (iii) be in fact fair and reasonable.
In addition, AIMCO has adopted certain policies
designed to minimize or eliminate conflicts of
interests between AIMCO and its executive officers and
directors. Without the approval of a majority of the
disinterested directors, AIMCO will not (i) acquire
from or sell to any director, officer or employee of
AIMCO or any entity in which a director, officer or
employee of AIMCO owns more than a 1% interest, or
acquire from or sell to any affiliate of any of the
foregoing, any assets or other property of AIMCO, (ii)
make any loan to or borrow from any of the foregoing
persons, or (iii) engage in any material transaction
with the foregoing. In addition, AIMCO has entered into
employment agreements with certain officers and
directors which include provisions intended to
eliminate or minimize potential conflicts of interest.
See "Business of the Company -- Policies of the Company
with Respect to Certain Other Activities."
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The AIMCO Operating Partnership Agreement contains no AIMCO is not restricted under its Charter or Bylaws
restrictions on borrowings, and the AIMCO GP has full from incurring borrowings.
power and authority to borrow money on behalf of the
AIMCO Operating Partnership.
</TABLE>
Review of Investor Lists
<TABLE>
<S> <C>
Each limited partner has the right, upon written demand Under Maryland law, a stockholder holding at least 5%
with a statement of the purpose of such demand and at of the outstanding stock of a corporation may, upon
such limited partner's own expense, to obtain a current written request, inspect and copy during usual business
list of the name and last known business, residence or hours the list of the stockholders of such corporation.
mailing address of the AIMCO GP and each other partner.
</TABLE>
Management Control
<TABLE>
<S> <C>
All management powers over the business and affairs of The AIMCO Board of Directors has exclusive control over
the AIMCO Operating Partnership are vested in the AIMCO AIMCO's business and affairs subject only to the
GP. No limited partner has any right to participate in restrictions in the Charter and the Bylaws. The
or exercise control or management power over the policies adopted by the AIMCO Board of Directors may be
business and affairs of the AIMCO Operating altered or eliminated without a vote of AIMCO's
Partnership. The limited partners have the right to stockholders. Accordingly, except for their vote in the
vote on certain matters described under "Voting Rights" election of directors, holders of Class A Common Stock
below. The AIMCO GP may not be removed by the limited have no control over the ordinary business policies of
partners with or without cause. AIMCO.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Notwithstanding anything to the contrary set forth in The Charter limits the liability of AIMCO's directors
the AIMCO Operating Partnership Agreement, the AIMCO GP and officers to AIMCO and its stockholders to the
is not liable to the AIMCO Operating Partnership for fullest extent permitted from time to time by Maryland
losses sustained, liabilities incurred or benefits not law. Maryland law presently permits the liability of
derived as a result of errors in judgment or mistakes directors and officers to a corporation or its
of fact or law of any act or omission if the AIMCO GP stockholders for money damages to be limited, except
acted in good faith. The AIMCO Operating Partnership (i) to the extent that it is proved that the director
Agreement provides for indemnification of AIMCO, or any or officer actually received an improper benefit or
director or officer of AIMCO (in its capacity as the profit in money, property or services actually
previous general partner of the AIMCO Operating received, or (ii) if a judgment or other final
Partnership), the AIMCO GP, any officer or director of adjudication is entered in a proceeding based on a
AIMCO GP or the AIMCO Operating Partnership and such finding that the director's or officer's action, or
other persons as the AIMCO GP may designate from and failure to act, was the result of active and deliberate
against all losses, claims, damages, liabilities, joint dishonesty and was material to the cause of action
or several, expenses (including legal adjudicated in the proceeding. This provision does not
limit the ability of AIMCO or its stockholders to
obtain other relief, such
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
fees), fines, settlements and other amounts incurred in as an injunction or recission.
connection with any actions relating to the operations
of the AIMCO Operating Partnership, as set forth in the The Charter and Bylaws require AIMCO to indemnify its
AIMCO Operating Partnership Agreement. The Delaware LP directors, officers and certain other parties to the
Act provides that subject to the standards and fullest extent permitted from time to time by Maryland
restrictions, if any, set forth in its partnership law. The MGCL permits a corporation to indemnify its
agreement, a limited partnership may, and shall have directors, officers and certain other parties against
the power to, indemnify and hold harmless any partner judgments, penalties, fines, settlements and reason-
or other person from and against any and all claims and able expenses actually incurred by them in connection
demands whatsoever. It is the position of the SEC that with any proceeding to which they may be made a party
indemnification of directors and officers for by reason of their service to or at the request of the
liabilities arising under the Securities Act is against corporation, unless it is established that (i) the act
public policy and is unenforceable pursuant to Section or omission of the indemnified party was material to
14 of the Securities Act of 1933. the matter giving rise to the proceeding and (x) was
committed in bad faith or (y) was the result of active
and deliberate dishonesty, (ii) the indemnified party
actually received an improper personal benefit in
money, property or services of (iii) in the case of any
criminal proceeding, the indemnified party had
reasonable cause to believe that the act or omission
was unlawful. Indemnification may be made against
judgments, penalties, fines, settlements and reasonable
expenses actually incurred by the director or officer
in connection with the proceeding; provided however,
that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with
respect to any proceeding in which the director or
officer has been adjudged to be liable to the
corporation. In addition, a director or officer may not
be indemnified with respect to any proceeding charging
improper personal benefit to the director or officer
was adjudged to be liable on the basis that personal
benefit was improperly received. The termination of any
proceeding by conviction, or upon a plea of nolo
contendere or its equivalent, or an entry of any order
of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet
the requisite standard or conduct required for
indemnification to be permitted. It is the position of
the SEC that indemnification of directors and officers
for liabilities arising under the Securities Act of
1933 is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act of 1933.
AIMCO has entered into agreements with certain of its
officers, pursuant to which AIMCO has agreed to
indemnify such officers to the fullest extent permitted
by applicable law.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Except in limited circumstances, the AIMCO GP has The Charter and Bylaws of AIMCO contain a number of
exclusive management power over the business and provisions that may have the effect of delaying or
affairs of the AIMCO Operating Partnership. The AIMCO discouraging an unsolicited proposal for the
GP may not be removed as general partner of the AIMCO acquisition of AIMCO or the removal of incumbent
Operating Partnership by the limited partners with or management. These provisions include, among others: (1)
without cause. Under the AIMCO Operating Partnership authorized shares of stock that may be issued, in the
Agreement, the AIMCO GP, as a general partner, may, in discretion of the AIMCO Board of Directors, as
its sole discretion, prevent a transferee of an OP Unit Preferred Stock with superior voting rights to the
from becoming a substituted limited partner pursuant to Class A Common Stock; (2) a requirement that directors
the AIMCO Operating Partnership Agreement. The AIMCO GP may be removed only for cause and by a vote of holders
may exercise this right of approval to deter, delay or of at least two-thirds of the votes entitled to be cast
hamper attempts by persons to acquire a controlling in the election of directors; (3) advance notice
interest in the AIMCO Operating Partnership. required in order to nominate persons for election to
Additionally, the AIMCO Operating Partnership Agreement the AIMCO Board of Directors or to propose business to
contains restrictions on the ability of limited be considered by stockholders at a stockholder's
partners to transfer their OP Units. See "Description meeting; and (4) provisions designed to avoid
of OP Units -- Transfers and Withdrawals." concentration of stock ownership in a manner that would
jeopardize AIMCO's status as a REIT under the Internal
Revenue Code. See "Description of Common
Stock -- Restrictions on Transfer" and "Risk
Factors -- Ownership Limit."
The MGCL contains provisions concerning certain
"business combinations" and "control share
acquisitions" (each as defined
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
in the MGCL) that could have the effect of discouraging
offers to acquire AIMCO and of increasing the
difficulty of consummating any such offer. See
"Description of Common Stock -- Business Combinations"
and "Description of Common Stock -- Control Share
Acquisitions."
</TABLE>
Amendment of the Partnership Agreement or the Charter and Bylaws
<TABLE>
<S> <C>
With the exception of certain circumstances set forth AIMCO may amend, alter or repeal any provision
in the AIMCO Operating Partnership Agreement, whereby contained in its Charter upon (i) adoption by the AIMCO
the AIMCO GP may, without the consent of the limited Board of Directors of a resolution recommending such
partners, amend the AIMCO Operating Partnership amendment, alteration, or repeal, (ii) presentation by
Agreement, amendments to the AIMCO Operating the AIMCO Board of Directors to the stockholders of a
Partnership Agreement require the consent of the resolution at an annual or special meeting of the
limited partners holding a majority of the outstanding stockholders and (iii) approval of such resolution by
Common OP Units, excluding the Special Limited Partner the affirmative vote of the holders of a majority (or,
and certain other limited exclusions (a "Majority in in certain cases, two- thirds) of the aggregate number
Interest"). Amendments to the AIMCO Operating of votes entitled to be cast generally in the election
Partnership Agreement may be proposed by the AIMCO GP of directors.
or by holders of a Majority in Interest. Following such
proposal, the AIMCO GP will submit any proposed Under the MGCL, unless otherwise provided in a
amendment to the limited partners. The AIMCO GP will corporation's charter, a proposed charter amendment
seek the written consent of the limited partners on the requires an affirmative vote of two-thirds of the
proposed amendment or will call a meeting to vote outstanding stock entitled to be cast on the matter.
thereon. See "Description of OP Units -- Amendment of However, the Charter provides that it may be amended
the AIMCO Operating Partnership Agreement." upon the affirmative vote of a majority (or, as
applicable, two-thirds) of the stock entitled to be
cast generally in the election of directors ("voting
stock"). Under the MGCL, the power to adopt, alter, and
repeal the bylaws is vested in the stockholders, except
to the extent that the charter or bylaws vest it in the
board of directors. The Bylaws provide that they may be
amended by vote of a majority of the AIMCO Board of
Directors. An amendment to any provision of the Bylaws
relating to their repeal or the removal of directors
may be effected only by the vote of two-thirds of the
voting stock.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
The AIMCO GP does not receive compensation for its The employees, officers and directors of AIMCO receive
services as general partner of the AIMCO Operating compensation for their services.
Partnership. However, the AIMCO GP is entitled to
payments, allocations and distributions in its capacity
as general partner of the AIMCO Operating Partnership.
In addition, the AIMCO Operating Partnership is
responsible for all expenses incurred relating to the
AIMCO Operating Partnership's ownership of its assets
and the operation of the AIMCO Operating Partnership
and reimburses the AIMCO GP for such expenses paid by
the AIMCO GP. The employees of the AIMCO Operating
Partnership receive compensation for their services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Except for fraud, willful misconduct or gross The MGCL provides that no stockholder of a corporation
negligence, no limited partner has personal liability will be personally liable for any obligations of such
for the AIMCO Operating Partnership's debts and corporation. Generally the liability of stockholders
obligations, and liability of the limited partners for for AIMCO's debts and obligations is limited to the
the AIMCO Operating Partnership's debts and obli- amount of their investment in AIMCO.
gations is generally limited to the amount of their
investment in the AIMCO Operating Partnership. However,
the limitations on the liability of limited partners
for the obligations of a limited partnership have not
been clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without
compliance with the applicable limited partnership
statute, or that the right or the exercise of the right
by the limited partners holding OP Units as a group to
make certain amendments to the AIMCO Operating
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
Partnership Agreement or to take other action pursuant
to the AIMCO Operating Partnership Agreement
constituted participation in the "control" of the AIMCO
Operating Partnership's business, then a limited
partner could be held liable under certain
circumstances for the AIMCO Operating Partnership's
obligations to the same extent as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Unless otherwise provided for in the relevant Under Maryland law, the members of the AIMCO Board of
partnership agreement, Delaware law generally requires Directors must perform their duties in good faith, in a
a general partner of a Delaware limited partnership to manner that they reasonably believe to be in the best
adhere to fiduciary duty standards under which it owes interests of AIMCO and with the care of an ordinarily
its limited partners the highest duties of good faith, prudent person in a like position. Members of the AIMCO
fairness and loyalty and which generally prohibit such Board of Directors who act in such a manner will
general partner from taking any action or engaging in generally not be liable to AIMCO for monetary damages
any transaction as to which it has a conflict of arising from their activities as members of the AIMCO
interest. The AIMCO Operating Partnership Agreement Board of Directors.
expressly authorizes the AIMCO GP to enter into, on
behalf of the AIMCO Operating Partnership, a right of
first opportunity arrangement and other conflict
avoidance agreements with various affiliates of the
AIMCO Operating Partnership and the AIMCO GP, on such
terms as the AIMCO GP, in its sole and absolute
discretion, believes are advisable. The AIMCO Operating
Partnership Agreement expressly limits the liability of
the AIMCO GP by providing that the AIMCO GP, and its
officers and directors will not be liable or
accountable in damages to the AIMCO Operating
Partnership, the limited partners or assignees for
errors in judgment or mistakes of fact or law or of any
act or omission if the AIMCO GP or such director or
officer acted in good faith. See "Risk Factors -- Risks
Associated With an Investment in OP Units -- Conflicts
of Interest and Fiduciary Responsibility" and
"Description of OP Units -- Fiduciary
Responsibilities."
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
The AIMCO Operating Partnership is not subject to AIMCO has elected to be taxed as a REIT beginning with
federal income taxes. Instead, each OP Unitholder its fiscal year ended December 31, 1994. So long as it
includes in income its allocable share of the AIMCO qualifies as a REIT, AIMCO will be permitted to deduct
Operating Partnership's taxable income or loss when it distributions paid to its stockholders, which
determines its individual federal income tax liability. effectively will reduce the "double taxation" that
typically results when a corporation earns income and
distributes that income to its stockholders in the form
of dividends. A qualified REIT, however, is subject to
federal income tax on income that is not distributed
and also may be subject to federal income and excise
taxes in certain circumstances. The maximum federal
income tax rate for corporations under current law is
35%, but in certain circumstances a REIT is subject to
a 100% tax on certain kinds of income.
Income and loss from the AIMCO Operating Partnership Dividends paid by AIMCO will be treated as "portfolio"
may be subject to the passive activity limitations. If income and cannot be offset with losses from "passive
an investment in an OP Unit is treated as a passive activities."
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and loss from the AIMCO Operating
Partnership can only be offset against other income and
loss from the AIMCO Operating Partnership). Income of
the AIMCO Operating Partnership, however, attributable
to dividends from the management companies or interest
paid by the management companies does not qualify as
passive activity income and cannot be offset against
losses from "passive activities."
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
Cash distributions by the AIMCO Operating Partnership Distributions by AIMCO to its taxable domestic
are not taxable to an OP Unitholder except to the stockholders out of current or accumulated earnings and
extent they exceed such Partner's basis in its interest profits will be taxed as ordinary income. Distributions
in the AIMCO Operating Partnership (which will include that are designated as capital gain dividends generally
such OP Unitholder's allocable share of the AIMCO will be taxed as long-term capital gain, subject to
Operating Partnership's nonrecourse debt). certain limitations. A distribution in excess of
current or accumulated earnings and profits will be
treated as a non-taxable return of basis to the extent
of a stockholder's adjusted basis in its shares of
stock of AIMCO with respect to which such distribution
is received, with the excess, if any, taxed as capital
gain.
Each year, OP Unitholders receive a Schedule K-1 tax Each year, stockholders of AIMCO receive a Form 1099
form containing tax information for inclusion in used by REITs to report dividends paid to their
preparing their federal income tax returns. stockholders.
OP Unitholders are required, in some cases, to file Stockholders who are individuals generally will not be
state income tax returns and/or pay state income taxes required to file state income tax returns and/or pay
in the states in which the AIMCO Operating Partnership state income taxes outside of their states of residence
owns property or transacts business, even if they are solely as a result of the fact that AIMCO owns property
not residents of those states. The AIMCO Operating or transacts business in various jurisdictions. AIMCO
Partnership may be required to pay state income taxes may be required to pay state income taxes in various
in certain states. states.
</TABLE>
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COMPARISON OF COMMON OP UNITS AND CLASS A COMMON STOCK
COMMON OP UNITS CLASS A COMMON STOCK
Nature of Investment
<TABLE>
<S> <C>
The Common OP Units constitute equity interests The Class A Common Stock constitute equity interests in
entitling each OP Unitholder to his or her pro rata AIMCO. Dividends are paid, when and as declared by the
share of cash distributions made from Available Cash AIMCO Board of Directors. In order to qualify as a
(as such term is defined in the AIMCO Operating REIT, AIMCO is required to distribute dividends (other
Partnership Agreement) to the partners of the AIMCO than capital gain dividends) to its stockholders in an
Operating Partnership. amount at least equal to (A) the sum of (i) 95% of
AIMCO's "REIT taxable income" (computed without regard
to the dividends paid deduction and AIMCO's net capital
gain) and (ii) 95% of the net income (after tax), if
any, from foreclosure property, minus (B) the sum of
certain items of noncash income.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Under the AIMCO Operating Partnership Agreement, the Each outstanding share of Class A Common Stock entitles
limited partners have voting rights only with respect the holder thereof to one vote on all matters submitted
to certain limited matters such as certain amendments to stockholders for vote, including the election of
and termination of the AIMCO Operating Partnership directors. See "Description of Common Stock -- Class A
Agreement and certain transactions such as the Common Stock." Holders of Class A Common Stock have the
institution of bankruptcy proceedings, an assignment right to vote on, among other things, a merger of
for the benefit of creditors and certain transfers by AIMCO, amendments to the Charter and the dissolution of
the AIMCO GP of its interest in the AIMCO Operating AIMCO. Certain amendments to the Charter require the
Partnership or the admission of a successor general affirmative vote of not less than two-thirds of votes
partner. entitled to be cast on the matter. The Charter permits
the AIMCO Board of Directors to classify and issue
capital stock in one or more series having voting power
which may differ from that of the Class A Common Stock.
Under Maryland law, a consolidation, merger, share
exchange or transfer of all or substantially all of the
assets of AIMCO requires the affirmative vote of not
less than two-thirds of all of the votes entitled to be
cast on the matter. With respect to each of these
transactions, only the holders of Class A Common Stock
are entitled to vote on the matters. No approval of the
stockholders is required for the sale of less than all
or substantially all of AIMCO's assets.
Maryland law provides that the AIMCO Board of Directors
must obtain the affirmative vote of at least two-thirds
of the votes entitled to be cast on the matter in order
to dissolve AIMCO. Only the holders of Class A Common
Stock are entitled to vote on AIMCO's dissolution.
</TABLE>
Distributions
<TABLE>
<S> <C>
Subject to the rights of holders of any outstanding Holders of the Class A Common Stock are entitled to
Preferred OP Units, the AIMCO Operating Partnership received dividends, when and as declared by the AIMCO
Agreement requires the AIMCO GP to cause the AIMCO Board of Directors, out of funds legally available
Operating Partnership to distribute quarterly all, or therefor. See "Per Share and Per Unit Data."
such portion as the AIMCO GP may in its sole and
absolute discretion determine, of Available Cash Holders of Class B Common Stock do not have dividend
generated by the AIMCO Operating Partnership during rights. A certain number of shares of Class B Common
such quarter to the AIMCO GP, the Special Limited Stock are eligible for conversion into an equal number
Partner and the holders of Common OP Units on the of shares of Class A Common Stock. Once Class B Common
record date established by the AIMCO GP with respect to Stock has been converted into Class A Common Stock,
such quarter, in accordance with their respective holders of such shares of converted Class A Common
interests in the AIMCO Operating Partnership on such Stock will have dividend rights of Class A Common Stock
record date. Holders of any other Preferred OP Units generally. See "Description of Common Stock -- Class B
issued in the future may have priority over the AIMCO Common Stock."
GP, the Special Limited Partner and holders of Common
OP Units with respect to distributions of Available AIMCO, in order to qualify as a REIT, is required to
Cash, distributions upon liquidation or other distribute dividends (other than capital gain
distributions. See "Per Share and Per Unit Data." dividends) to its stockholders in an amount at least
equal to (A) the sum of (i) 95% of AIMCO's
</TABLE>
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COMMON OP UNITS CLASS A COMMON STOCK
<TABLE>
<S> <C>
The AIMCO GP in its sole and absolute discretion may "REIT taxable income" (computed without regard to the
distribute to the OP Unitholders Available Cash on a dividends paid deduction and AIMCO's net capital gain)
more frequent basis and provide for an appropriate and (ii) 95% of the net income (after tax), if any,
record date. The AIMCO Operating Partnership Agreement from foreclosure property, minus (B) the sum of certain
requires the AIMCO GP to take such reasonable efforts, items of noncash income. See "Federal Income Taxation
as determined by it in its sole and absolute discretion of AIMCO and AIMCO Stockholders -- General."
and consistent with AIMCO's qualification as a REIT, to
cause the AIMCO Operating Partnership to distribute
sufficient amounts to enable the AIMCO GP to transfer
funds to AIMCO and enable AIMCO to pay stockholder
dividends that will (i) satisfy the requirements for
qualifying as a REIT under the Code, and the Treasury
Regulations and (ii) avoid any federal income or excise
tax liability of AIMCO. See "Description of OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the OP Units and the OP The Class A Common Stock is transferable subject to the
Units are not listed on any securities exchange. Ownership Limit set forth in the Charter. The Class A
Common Stock is listed on the NYSE.
Pursuant to the AIMCO Operating Partnership Agreement,
until the expiration of one year from the date on which
an OP Unitholder acquired OP Units, subject to certain
exceptions, such OP Unitholder may not transfer all or
any portion of its OP Units to any transferee without
the consent of the AIMCO GP, which consent may be
withheld in its sole and absolute discretion. After the
expiration of one year, such OP Unitholder has the
right to transfer all or any portion of its OP Units to
any person, subject to the satisfaction of certain
conditions specified in the AIMCO Operating Partnership
Agreement, including the AIMCO GP's right of first
refusal. See "Description of OP Units -- Transfers and
Withdrawals."
After the first anniversary of becoming a holder of
Common OP Units, an OP Unitholder has the right,
subject to the terms and conditions of the AIMCO
Operating Partnership Agreement, to require the AIMCO
Operating Partnership to redeem all or a portion of the
Common OP Units held by such party in exchange for a
cash amount based on the value of shares of Class A
Common Stock. See "Description of OP
Units -- Redemption Rights." Upon receipt of a notice
of redemption, the AIMCO GP may, in its sole and
absolute discretion but subject to the restrictions on
the ownership of Class A Common Stock imposed under the
AIMCO Charter and the transfer restrictions and other
limitations thereof, elect to cause AIMCO to acquire
some or all of the tendered Common OP Units in exchange
for Class A Common Stock, based on an exchange ratio of
one share of Class A Common Stock for each Common OP
Unit, subject to adjustment as provided in the AIMCO
Operating Partnership Agreement.
</TABLE>
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FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS
The following is a summary of certain federal income tax consequences
resulting from the acquisition of, holding, exchanging, and otherwise disposing
of Class A Common Stock and the Preferred Stock (collectively, the Class A
Common Stock and the Preferred Stock are referred to herein as the "AIMCO
Stock"). This discussion is based upon the Code, the Treasury Regulations,
rulings issued by the IRS, and judicial decisions, all in effect as of the date
of this Registration Statement and all of which are subject to change, possibly
retroactively. Such summary is also based on the assumptions that the operation
of AIMCO, the AIMCO Operating Partnership and the limited liability companies
and limited partnerships in which they own controlling interests (collectively,
the "Subsidiary Partnerships") will be in accordance with their respective
organizational documents and partnership agreements. This summary is for general
information only and does not purport to discuss all aspects of federal income
taxation which may be important to a particular investor in light of its
investment or tax circumstances, or to certain types of investors subject to
special tax rules (including financial institutions, broker-dealers, insurance
companies, and, except to the extent discussed below, tax-exempt organizations
and foreign investors, as determined for United States federal income tax
purposes). This summary assumes that investors will hold their AIMCO Stock as
"capital assets" (generally, property held for investment). No advance ruling
has been or will be sought from the IRS regarding any matter discussed in this
Registration Statement.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF AIMCO STOCK DEPENDS IN SOME
INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF
FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF AIMCO STOCK AND OF AIMCO'S
ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
GENERAL
The REIT provisions of the Code are highly technical and complex. The
following summary sets forth certain aspects of the provisions of the Code that
govern the federal income tax treatment of a REIT and its stockholders. This
summary is qualified in its entirety by the applicable Code provisions, Treasury
Regulations, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly retroactively.
AIMCO has elected to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1994, and AIMCO intends to continue such
election. Although AIMCO believes, and it has received an opinion of Counsel to
the effect that, commencing with the AIMCO's initial taxable year ended December
31, 1994, AIMCO was organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation, and its actual
method of operation since its formation, will enable it to meet the requirements
for qualification and taxation as a REIT under the Code. No assurance can be
given that AIMCO has been or will remain so qualified. It must be emphasized
that this opinion is based and conditioned upon certain assumptions and
representations and covenants made by AIMCO as to factual matters (including
representations of AIMCO concerning its business and properties as set forth in
this Registration Statement). The opinion is expressed as of its date and
Counsel has no obligation to advise holders of Securities of any subsequent
change in the matters stated, represented or assumed or any subsequent change in
the applicable law. Moreover, such qualification and taxation as a REIT depends
upon AIMCO's ability to meet, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Code as discussed below, the results of which will not
be reviewed by Counsel. Accordingly, no assurance can be given that the actual
results of AIMCO's operation for any one taxable year will satisfy such
requirements. See " -- Failure to Qualify." An opinion of counsel is not binding
on the IRS, and no assurance can be given that the IRS will not challenge
AIMCO's eligibility for taxation as a REIT.
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Provided AIMCO qualifies for taxation as a REIT, it will generally not be
subject to federal corporate income tax on its net income that is currently
distributed to its stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, notwithstanding AIMCO's
qualification as a REIT, AIMCO will be subject to federal income tax as follows:
First, AIMCO will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, AIMCO may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if AIMCO has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fourth, if AIMCO should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which AIMCO fails the 75% or 95%
test multiplied by (b) a fraction intended to reflect AIMCO's profitability.
Fifth, if AIMCO should fail to distribute during each calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year (other than certain long-term capital
gains that AIMCO elects to retain and pay the tax thereon), and (iii) any
undistributed taxable income from prior periods, AIMCO would be subjected to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Sixth, if AIMCO acquires assets from a subchapter C
corporation in a transaction in which the adjusted tax basis of the assets in
the hands of AIMCO is determined by reference to the adjusted tax basis of such
assets in the hands of the subchapter C corporation (such as the assets acquired
from Insignia in the Insignia Merger), under Treasury Regulations not yet
promulgated, the subchapter C corporation would be required to recognize any net
Built-In Gain (as defined below) that would have been realized if the Subchapter
C corporation had liquidated on the day before the date of the transfer.
Pursuant to IRS Notice 88-19, AIMCO may elect, in lieu of the treatment
described above, to be subject to tax at the highest regular corporate tax rate
on such gain to the extent of the excess, if any, of the fair market value over
the adjusted basis of such asset as of the beginning of the ten-year period
("Built-in Gain"). AIMCO intends to make such an election and, therefore, will
be taxed at the highest regular corporate rate on such Built-in Gain if, and to
the extent, such assets are sold within the specified ten-year period. It should
be noted that AIMCO has acquired (and will acquire in the Insignia Merger) a
significant amount of assets with Built-in Gain and a taxable disposition by
AIMCO of any of these assets within ten years of their acquisitions would
subject AIMCO to tax under the foregoing rule. Seventh, AIMCO could be subject
to foreign taxes on its investments and activities in foreign jurisdictions. In
addition, AIMCO could also be subject to tax in certain situations and on
certain transactions not presently contemplated.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for the special Code provisions applicable to REITs; (4) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code; (5) the beneficial ownership of which is held by 100 or more persons;
(6) in which, during the last half of each taxable year, not more than 50% in
value of the outstanding stock is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and (7)
which meets certain other tests described below (including with respect to the
nature of its income and assets). The Code provides that conditions (1) through
(4) must be met during the entire taxable year, and that condition (5) must be
met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. The Charter
provides certain restrictions regarding transfers of its shares, which
provisions are intended to assist AIMCO in satisfying the share ownership
requirements described in conditions (5) and (6) above.
To monitor AIMCO's compliance with the share ownership requirements, AIMCO
is required to maintain records regarding the actual ownership of its shares. To
do so, AIMCO must demand written statements each year from the record holders of
certain percentages of its stock in which the record holders are
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to disclose the actual owners of the shares (i.e., the persons required to
include in gross income the REIT dividends). A list of those persons failing or
refusing to comply with this demand must be maintained as part of AIMCO's
records. A stockholder who fails or refuses to comply with the demand must
submit a statement with its tax return disclosing the actual ownership of the
shares and certain other information.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. AIMCO satisfies this requirement.
Ownership of Partnership Interests
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the partnership's assets and to earn its proportionate share of the
partnership's income. In addition, the assets and gross income of the
partnership retain the same character in the hands of the REIT for purposes of
the gross income and asset tests applicable to REITs as described below. Thus,
AIMCO's proportionate share of the assets, liabilities and items of income of
the partnerships and limited liability companies in which it has ownership
interests (the "Subsidiary Partnerships") will be treated as assets, liabilities
and items of income of AIMCO for purposes of applying the REIT requirements
described herein. A summary of certain rules governing the federal income
taxation of partnerships and their partners is provided below in "Tax Aspects of
AIMCO's Investments in Partnerships."
Income Tests
In order to maintain qualification as a REIT, AIMCO annually must satisfy
two gross income requirements. First, at least 75% of AIMCO's gross income
(excluding gross income from "prohibited transactions," i.e., certain sales of
property held primarily for sale to customers in the ordinary course of
business) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of AIMCO's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, and from dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing).
Rents received by AIMCO through the Subsidiary Partnerships will qualify as
"rents from real property" in satisfying the gross income requirements described
above, only if several conditions are met, including the following. If rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Moreover, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an "independent contractor" from which the REIT derives no revenue.
However, AIMCO (or its affiliates) is permitted to directly perform services
that are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered rendered to the
occupant of the property. In addition, AIMCO (or its affiliates) may provide
non-customary services to tenants of its properties without disqualifying all of
the rent from the property if the payment for such services does not exceed 1%
of the total gross income from the property. For purposes of this test, the
income received from such non-customary services is deemed to be at least 150%
of the direct cost of providing the services.
PAMS LP and the other subsidiaries of the Company that manage the Managed
Properties (collectively, the "Management Subsidiaries") receive management fees
and other income. A portion of such fees and other income accrue to AIMCO
through distributions from the Management Subsidiaries that will be classified
as dividend income to the extent of the earnings and profits of the Management
Subsidiaries. Such distributions will generally qualify under the 95% gross
income test but not under the 75% gross income test.
If AIMCO fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if AIMCO's failure to meet such tests was
due to reasonable
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cause and not due to willful neglect, AIMCO attaches a schedule of the sources
of its income to its return, and any incorrect information on the schedule was
not due to fraud with intent to evade tax. It is not possible, however, to state
whether in all circumstances AIMCO would be entitled to the benefit of these
relief provisions. If these relief provisions are inapplicable to a particular
set of circumstances involving AIMCO, AIMCO will not qualify as a REIT. As
discussed above in "-- General," even where these relief provisions apply, a tax
is imposed with respect to the excess net income.
Asset Tests
AIMCO, at the close of each quarter of its taxable year, must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of AIMCO's total assets must be represented by real estate assets
(including its allocable share of real estate assets held by the Subsidiary
Partnerships), certain stock or debt instruments purchased by AIMCO with new
capital, cash, cash items and U.S. government securities. Second, not more than
25% of AIMCO's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by AIMCO may not exceed 5% of the
value of AIMCO's total assets, and AIMCO may not own more than 10% of any one
issuer's outstanding voting securities.
AIMCO indirectly owns interests in the Management Subsidiaries. As set
forth above, the ownership of more than 10% of the voting securities of any one
issuer by a REIT or the investment of more than 5% of the REIT's total assets in
any one issuer's securities is prohibited by the asset tests. AIMCO believes
that its indirect ownership interests in the Management Subsidiaries qualify
under the asset tests set forth above. However, no independent appraisals have
been obtained to support AIMCO's conclusions as to the value of the AIMCO
Operating Partnership's total assets and the value of the AIMCO Operating
Partnership's interest in the Management Subsidiaries and these values are
subject to change in the future. Accordingly, there can be no assurance that the
IRS will not contend that the AIMCO Operating Partnership's ownership interests
in the Management Subsidiaries disqualifies AIMCO from treatment as a REIT.
AIMCO's indirect interests in the AIMCO Operating Partnership and other
Subsidiary Partnerships are held through wholly owned corporate subsidiaries of
AIMCO organized and operated as "qualified REIT subsidiaries" within the meaning
of the Code. Qualified REIT subsidiaries are not treated as separate entities
from their parent REIT for federal income tax purposes. Instead, all assets,
liabilities and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets, liabilities and items of AIMCO. Each qualified
REIT subsidiary therefore is not subject to federal corporate income taxation,
although it may be subject to state or local taxation. In addition, AIMCO's
ownership of the voting stock of each qualified REIT subsidiary does not violate
the general restriction against ownership of more than 10% of the voting
securities of any issuer.
Annual Distribution Requirements
AIMCO, in order to qualify as a REIT, is required to distribute dividends
(other than capital gain dividends) to its stockholders in an amount at least
equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income" (computed
without regard to the dividends paid deduction and AIMCO's net capital gain) and
(ii) 95% of the net income (after tax), if any, from foreclosure property, minus
(B) the sum of certain items of noncash income. Such distributions must be paid
in the taxable year to which they relate, or in the following taxable year if
declared before AIMCO timely files its tax return for such year and if paid with
or before the first regular dividend payment after such declaration. To the
extent that AIMCO distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at ordinary
corporate tax rates. AIMCO may elect to retain, rather than distribute, its net
long-term capital gains and pay tax on such gains. In such a case, AIMCO's
stockholders would include their proportionate share of such undistributed
long-term capital gains in income and receive a credit for their share of the
tax paid by AIMCO. AIMCO's stockholders would then increase the adjusted basis
of their AIMCO shares by the difference between the designated amounts included
in their long-term capital gains and the tax deemed paid with respect to their
shares. If AIMCO should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year and (ii) 95% of its
REIT capital gain net income for such
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year (excluding retained long-term capital gains), and (iii) any undistributed
taxable income from prior periods, AIMCO would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually distributed.
AIMCO believes that it has made, and intends to make, timely distributions
sufficient to satisfy these annual distribution requirements.
It is possible that AIMCO, from time to time, may not have sufficient cash
to meet the 95% distribution requirement due to timing differences between (i)
the actual receipt of cash (including receipt of distributions from the AIMCO
Operating Partnership) and (ii) the inclusion of certain items in income by
AIMCO for federal income tax purposes. In the event that such timing differences
occur, in order to meet the 95% distribution requirement, AIMCO may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable distributions of property.
Under certain circumstances, AIMCO may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in AIMCO's deduction for
dividends paid for the earlier year. Thus, AIMCO may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, AIMCO will be
required to pay interest and a penalty based on the amount of any deduction
taken for deficiency dividends.
Distribution of Acquired Earnings and Profits
The Code provides that when a REIT acquires a corporation that is currently
a C corporation (i.e., a corporation without a REIT election, such as Insignia),
the REIT may qualify as a REIT only if, as of the close of the year of
acquisition, the REIT has no "earnings and profits" acquired from such C
corporation. In the Insignia Merger, AIMCO will succeed to the earnings and
profits of Insignia and, therefore, AIMCO must distribute such earnings and
profits effective on or before December 31, 1998. Insignia has retained
independent certified public accountants to determine Insignia's earnings and
profits for purposes of this requirement. The determination of the independent
certified public accountants will be based upon Insignia's tax returns as filed
with the IRS and other assumptions and qualifications set forth in the reports
issued by such accountants. Any adjustments to Insignia's income for taxable
years ending on or before the closing of the Insignia Merger, including as a
result of an examination of its returns by the IRS or the receipt of certain
indemnity or other payments, could affect the calculation of Insignia's earnings
and profits. Furthermore, the determination of earnings and profits requires the
resolution of certain technical tax issues with respect to which there is no
authority directly on point and, consequently, the proper treatment of these
issues for earnings and profits purposes is not free from doubt. There can be no
assurance that the IRS will not examine the tax returns of Insignia and propose
adjustments to increase its taxable income and therefore its earnings and
profits. In this regard, the IRS can consider all taxable years of Insignia as
open for review for purposes of determining the amount of such earnings and
profits. Moreover, if the Special Dividend is not treated as a dividend under
the Code, AIMCO may, depending upon the amount of other distributions made by
AIMCO subsequent to the Insignia Merger, fail to distribute an amount equal to
Insignia's earnings and profits. AIMCO's failure to distribute an amount equal
to such earnings and profits effective on or before December 31, 1998, would
result in AIMCO's failure to qualify as a REIT.
Failure to Qualify
If AIMCO fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, AIMCO will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which AIMCO fails to qualify
will not be deductible by AIMCO nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless AIMCO is entitled to relief under
specific statutory provisions, AIMCO would also be disqualified from taxation as
a REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances AIMCO would
be entitled to such statutory relief.
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TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS
General
Substantially all of AIMCO's investments are held indirectly through the
AIMCO Operating Partnership. In general, partnerships are "pass-through"
entities that are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. AIMCO will include in its income its proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of its REIT taxable income. Moreover, for purposes of the REIT
asset tests, AIMCO will include its proportionate share of assets held by the
Subsidiary Partnerships. See "-- Federal Income Taxation of AIMCO and AIMCO
Stockholders -- General."
Entity Classification
AIMCO's direct and indirect investment in partnerships involves special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of the Subsidiary Partnerships as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. If any of
these entities were treated as an association for federal income tax purposes,
it would be subject to an entity-level tax on its income. In such a situation,
the character of AIMCO's assets and items of gross income would change and could
preclude AIMCO from satisfying the asset tests and the income tests (see "--
Federal Income Taxation of AIMCO and AIMCO Stockholders -- Asset Tests" and "--
Federal Income Taxation of AIMCO and AIMCO Stockholders -- Income Tests"), and
in turn could prevent AIMCO from qualifying as a REIT. See "-- Federal Income
Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify" above for a
discussion of the effect of AIMCO's failure to meet such tests for a taxable
year. In addition, any change in the status of any of the Subsidiary
Partnerships for tax purposes might be treated as a taxable event, in which case
AIMCO might incur a tax liability without any related cash distributions.
Tax Allocations with Respect to the Properties
Under the Code and the Treasury Regulations, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution, and the
adjusted tax basis of such property at the time of contribution (a "Book -- Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. See "-- Federal Income Taxation of the AIMCO Operating
Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property
to the AIMCO Operating Partnership." The AIMCO Operating Partnership was formed
by way of contributions of appreciated property (including certain of the Owned
Properties). Consequently, allocations must be made in a manner consistent with
these requirements. Where a partner contributes cash to a partnership that holds
appreciated property, the Treasury Regulations provide for a similar allocation
of such items to the other partners. These rules apply to the contribution by
AIMCO to the AIMCO Operating Partnership of the cash proceeds received in any
offerings of its stock.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on the sale by the AIMCO Operating Partnership or other Subsidiary Partnerships
of the contributed properties. This will tend to eliminate the Book-Tax
Difference over the life of these partnerships. However, the special allocations
do not always entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale. Thus, the
carryover basis of the contributed properties in the hands of the AIMCO
Operating Partnership or other Subsidiary Partnerships may cause AIMCO to be
allocated lower depreciation and other deductions, and
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possibly greater amounts of taxable income in the event of a sale of such
contributed assets in excess of the economic or book income allocated to it as a
result of such sale. This may cause AIMCO to recognize taxable income in excess
of cash proceeds, which might adversely affect AIMCO's ability to comply with
the REIT distribution requirements. See "-- Federal Income Taxation of AIMCO and
AIMCO Stockholders -- Annual Distribution Requirements."
With respect to any property purchased or to be purchased by any of the
Subsidiary Partnerships (other than through the issuance of OP Units) subsequent
to the formation of AIMCO, such property will initially have a tax basis equal
to its fair market value and the special allocation provisions described above
will not apply.
Sale of the Properties
AIMCO's share of any gain realized by the AIMCO Operating Partnership or
any other Subsidiary Partnership on the sale of any property held as inventory
or primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "-- Taxation of AIMCO and AIMCO
Stockholders -- General -- Income Tests." Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of a partnership's trade or business is a question of fact that depends on all
the facts and circumstances with respect to the particular transaction. The
AIMCO Operating Partnership and the other Subsidiary Partnerships intend to hold
the Owned Properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning and operating the Owned
Properties and to make such occasional sales of the Owned Properties, including
peripheral land, as are consistent with AIMCO's investment objectives.
TAXATION OF MANAGEMENT SUBSIDIARIES
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from distributions made by the Management Subsidiaries to
the AIMCO Operating Partnership, and interest paid by the Management
Subsidiaries on certain notes held by the AIMCO Operating Partnership. In
general, the Management Subsidiaries pay federal, state and local income taxes
on their taxable income at normal corporate rates. Any federal, state or local
income taxes that the Management Subsidiaries are required to pay will reduce
AIMCO's cash flow from operating activities and its ability to make payments to
holders of its securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
Distributions
Provided AIMCO qualifies as a REIT, distributions made to AIMCO's taxable
domestic stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions (and retained long-term capital gains) that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed AIMCO's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. In addition, net capital
gains attributable to the sale of depreciable real property held for more than
12 months is subject to a 25% maximum federal income tax rate to the extent of
previously claimed real property depreciation.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares in respect of which the distributions
were made, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares in respect of which the distributions were made, they will be included in
income as long-term capital gain (or short-term capital gain if the shares have
been held for one year or less) provided that the shares are a capital asset in
the hands of the stockholder. In
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addition, any dividend declared by AIMCO in October, November or December of any
year and payable to a stockholder of record on a specified date in any such
month will be treated as both paid by AIMCO and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by AIMCO
during January of the following calendar year. Stockholders may not include in
their individual income tax returns any net operating losses or capital losses
of AIMCO. In general, any loss upon a sale or exchange of shares by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from AIMCO required to be treated by such stockholder as
long-term capital gain.
Dispositions of AIMCO Stock
In general, under the recently enacted Internal Revenue Service
Restructuring and Reform Act of 1988, capital gains recognized by individuals
and other non-corporate taxpayers upon the sale or disposition of AIMCO Stock
will be subject to a maximum federal income tax rate of 20% if the AIMCO Stock
is held for more than 12 months and will be taxed at ordinary income rates if
the AIMCO Stock is held for 12 months or less. Capital losses recognized by a
stockholder upon the disposition of AIMCO Stock held for more than one year at
the time of disposition will be a long-term capital loss. In addition, any loss
upon a sale or exchange of shares of AIMCO Stock by a stockholder who has held
such shares for six months or less (after applying certain holding period rules)
will be treated as a long-term capital loss to the extent of distributions from
AIMCO required to be treated by such stockholder as long-term capital gain.
A redemption of the Preferred Stock will be treated under Section 302 of
the Code as a dividend subject to tax at ordinary income tax rates (to the
extent of AIMCO's current or accumulated earnings and profits), unless the
redemption satisfies certain tests set forth in Section 302(b) of the Code
enabling the redemption to be treated as a sale or exchange of the Preferred
Stock. The redemption will satisfy such test if it (i) is "substantially
disproportionate" with respect to the holder (which will not be the case if only
the Preferred Stock is redeemed, since it generally does not have voting
rights), (ii) results in a "complete termination" of the holder's stock interest
in AIMCO, or (iii) is "not essentially equivalent to a dividend" with respect to
the holder, all within the meaning of Section 302(b) of the Code. In determining
whether any of these tests have been met, shares considered to be owned by the
holder by reason of certain constructive ownership rules set forth in the Code,
as well as shares actually owned, must generally be taken into account. Because
the determination as to whether any of the alternative tests of Section 302(b)
of the Code is satisfied with respect to any particular holder of the Preferred
Stock will depend upon the facts and circumstances as of the time the
determination is made, prospective investors are advised to consult their own
tax advisors to determine such tax treatment. If a redemption of the Preferred
Stock is treated as a distribution that is taxable as a dividend, the amount of
the distribution would be measured by the amount of cash and the fair market
value of any property received by the stockholders. The stockholder's adjusted
tax basis in such redeemed Preferred Stock would be transferred to the holder's
remaining stockholdings in AIMCO. If, however, the stockholder has no remaining
stockholdings in AIMCO, such basis may, under certain circumstances, be
transferred to a related person or it may be lost entirely.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated U.S. federal income
and estate tax consequences of the ownership and disposition of AIMCO Stock
applicable to Non-U.S. Holders of AIMCO Stock. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof or the District of Columbia, (iii) an
estate whose income is includible in gross income for U.S. federal income tax
purposes regardless of its source or (iv) a trust if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of such trust. The discussion is based on current law and
is for general information only. The discussion addresses only certain and not
all aspects of U.S. federal income and estate taxation.
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Ordinary Dividends
The portion of dividends received by Non-U.S. Holders payable out of
AIMCO's earnings and profits which are not attributable to capital gains of
AIMCO and which are not effectively connected with a U.S. trade or business of
the Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by treaty). In general, Non-U.S. Holders will not be considered
engaged in a U.S. trade or business solely as a result of their ownership of
AIMCO Stock. In cases where the dividend income from a Non-U.S. Holder's
investment in AIMCO Stock is (or is treated as) effectively connected with the
Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S. Holder
generally will be subject to U.S. tax at graduated rates, in the same manner as
U.S. Holders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax in the case of a Non-U.S. Holder that is a
corporation).
Non-Dividend Distributions
Unless AIMCO Stock constitutes a United States Real Property Interest (a
"USRPI"), distributions by AIMCO which are not dividends out of the earnings and
profits of AIMCO will not be subject to U.S. income or withholding tax. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Holder may seek a refund of such amounts from
the IRS if it is subsequently determined that such distribution was, in fact, in
excess of current and accumulated earnings and profits of AIMCO. If AIMCO Stock
constitutes a USRPI, such distributions will be subject to 10% withholding and
taxed pursuant to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") at a rate of 35% to the extent such distributions exceed a
stockholder's basis in his or her AIMCO Stock.
Capital Gain Dividends
Under FIRPTA, a distribution made by AIMCO to a Non-U.S. Holder, to the
extent attributable to gains from dispositions of USRPIs such as the properties
beneficially owned by AIMCO ("USRPI Capital Gains"), will be considered
effectively connected with a U.S. trade or business of the Non-U.S. Holder and
subject to U.S. income tax at the rates applicable to U.S. individuals or
corporations, without regard to whether such distribution is designated as a
capital gain dividend. In addition, AIMCO will be required to withhold tax equal
to 35% of the amount of dividends to the extent such dividends constitute USRPI
Capital Gains. Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of Non-U.S. Holder that is a corporation.
Dispositions of AIMCO Stock
Unless AIMCO Stock constitutes a USRPI, a sale of such stock by a Non-U.S.
Holder generally will not be subject to U.S. taxation under FIRPTA. The stock
will not constitute a USRPI if AIMCO is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which, at all times during a specified
testing period, less than 50% in value of its shares is held directly or
indirectly by Non-U.S. Holders. AIMCO believes that it is, and it expects to
continue to be, a domestically controlled REIT and, therefore, the sale of AIMCO
Stock should not be subject to taxation under FIRPTA. Because the Class A Common
Stock is publicly traded, however, no assurance can be given that AIMCO is or
will continue to be a domestically controlled REIT.
If AIMCO does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of stock generally will still not be subject to tax under FIRPTA
as a sale of a USRPI provided that (i) the stock is "regularly traded" (as
defined by applicable Treasury Regulations) on an established securities market
(e.g., the NYSE, on which AIMCO Class A Common Stock is listed) and (ii) the
selling Non-U.S. Holder held 5% or less of AIMCO's outstanding stock at all
times during a specified testing period.
If gain on the sale of stock of AIMCO were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals)
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and the purchaser of the stock could be required to withhold 10% of the purchase
price and remit such amount to the IRS.
Gain from the sale of AIMCO Stock that would not otherwise be subject to
FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in
two cases: (i) if the Non-U.S. Holder's investment in the AIMCO Stock is
effectively connected with a U.S. trade or business conducted by such Non-U.S.
Holder, the Non-U.S. Holder will be subject to the same treatment as a U.S.
stockholder with respect to such gain, or (ii) if the Non-U.S. Holder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
Estate Tax
AIMCO Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual's estate may be subject to U.S.
federal estate tax on the property includible in the estate for U.S. federal
estate tax purposes.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
AIMCO will report to its U.S. stockholders and to the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide AIMCO with his correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, AIMCO may be required to withhold a portion
of capital gain distributions to any Non-U.S. Holders who fail to certify their
foreign status to AIMCO. The IRS has issued final Treasury Regulations regarding
the backup withholding rules as applied to Non-U.S. Holders. Those final
Treasury Regulations alter the current system of backup withholding compliance
and will be effective for payments made after December 31, 1999. Prospective
investors in AIMCO Stock should consult their tax advisors regarding the
application of these Treasury Regulations.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the IRS has ruled that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the shares of the REIT are not otherwise used in an
unrelated trade or business of the exempt employee pension trust. Based on that
ruling, amounts distributed by AIMCO to Exempt Organizations should generally
not constitute UBTI. However, if an Exempt Organization finances its acquisition
of the AIMCO Stock with debt, a portion of its income from AIMCO will constitute
UBTI pursuant to the "debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17) and (20), respectively, of Section 501(c) of the
Code are subject to different UBTI rules, which generally will require them to
characterize distributions from AIMCO as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of AIMCO's stock is
required to treat a percentage of the dividends from AIMCO as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by AIMCO from an
unrelated trade or business (determined as if AIMCO were a pension trust)
divided by the gross income of AIMCO for the year in which the dividends are
paid. The UBTI rule applies to a pension trust holding more than 10% of
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AIMCO's stock only if (i) the UBTI Percentage is at least 5%, (ii) AIMCO
qualifies as a REIT by reason of the modification of the 5/50 Rule that allows
the beneficiaries of the pension trust to be treated as holding shares of AIMCO
in proportion to their actuarial interest in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of AIMCO's stock or (B) a
group of pension trusts each individually holding more than 10% of the value of
AIMCO's stock collectively owns more that 50% of the value of AIMCO's stock. The
restrictions on ownership and transfer of AIMCO's stock should prevent an Exempt
Organization from owning more than 10% of the value of AIMCO's stock.
FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP
AND OP UNITHOLDERS
The following is a summary of certain federal income tax consequences
resulting from the acquisition of, holding, exchanging, and otherwise disposing
of OP Units. This discussion is based upon the Code, the Treasury Regulations,
rulings issued by the IRS, and judicial decisions, all in effect as of the date
of this Registration Statement and all of which are subject to change, possibly
retroactively. Such summary is also based on the assumptions that the operation
of AIMCO, the AIMCO Operating Partnership and the Subsidiary Partnerships will
be in accordance with their respective organizational documents and partnership
agreements. This summary is for general information only and does not purport to
discuss all aspects of federal income taxation which may be important to a
particular investor in light of its investment or tax circumstances, or to
certain types of investors subject to special tax rules (including financial
institutions, broker-dealers, insurance companies, and, except to the extent
discussed below, tax-exempt organizations and foreign investors, as determined
for United States federal income tax purposes). This summary assumes that
investors will hold their OP Units as "capital assets' (generally, property held
for investment). No advance ruling has been or will be sought from the IRS
regarding any matter discussed in this Registration Statement.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OP UNITS DEPENDS IN SOME
INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF
FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OP UNITS AND OF AIMCO'S ELECTION
TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
PARTNERSHIP STATUS
AIMCO has received an opinion of Counsel to the effect that the AIMCO
Operating Partnership is classified as a partnership for federal income tax
purposes, and not as an association taxable as a corporation. It must be
emphasized that this opinion of Counsel is based on and conditioned upon ceratin
assumptions and representations and on opinions of local counsel with respect to
matters of local law. The opinion is expressed as of its date and Counsel has no
obligation to advise AIMCO of any subsequent change in matters stated,
represented or assumed or any subsequent change in the applicable law. An
opinion of Counsel is not binding on the IRS, and no assurance can be given that
the IRS will not challenge the status of the AIMCO Operating Partnership as a
partnership.
Some partnerships are, for federal income tax purposes, characterized not
as a partnership but as an association taxable as a corporation or as a
"publicly traded partnership" taxable as a corporation. A partnership will be
classified as a publicly traded partnership if interests therein are traded on
an "established securities market" or are "readily tradable" on a "secondary
market (or the substantial equivalent thereof)."
The AIMCO Operating Partnership believes and intends to take the position
that the AIMCO Operating Partnership should not be classified as a publicly
traded partnership because (i) the OP Units are not traded on an established
securities market and (ii) the OP Units should not be considered readily
tradable on a secondary market or the substantial equivalent thereof. The
determination of whether interests in a partnership are readily tradable on a
secondary market or the substantial equivalent thereof, however, depends
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on various facts and circumstances (including facts that are not within the
control of the AIMCO Operating Partnership). Treasury Regulations generally
effective for taxable years beginning after December 31, 1995 (the "PTP
Regulations") provide limited safe harbors, which, if satisfied, will prevent a
partnership's interests from being treated as readily tradable on a secondary
market or the substantial equivalent thereof. Under a grandfather rule, certain
existing partnerships may rely on safe harbors contained in IRS Notice 88-75
rather than on the safe harbors contained in the PTP Regulations for all taxable
years of the partnership beginning before January 1, 2006. The AIMCO Operating
Partnership believes that it is subject to such grandfather rule and that it
cannot rely on the safe harbors contained in the PTP Regulations. The AIMCO
Operating Partnership may not have satisfied any of the safe harbors in Notice
88-75 in its previous tax years. In addition, because the AIMCO Operating
Partnership's ability to satisfy a safe harbor in Notice 88-75 (or to the extent
applicable, a safe harbor in the PTP Regulations) may involve facts that are not
within its control, it is impossible to predict whether the AIMCO Operating
Partnership will satisfy a safe harbor in future tax years. The safe harbors in
Notice 88-75 are not intended to be substantive rules for the determination of
whether partnership interests are readily tradable on a secondary market or the
substantial equivalent thereof, and consequently, the failure to meet these safe
harbors will not necessarily cause the AIMCO Operating Partnership to be treated
as a publicly traded partnership. No assurance can be given, however, that the
IRS will not assert that partnerships such as the AIMCO Operating Partnership
constitute publicly traded partnerships, or that facts and circumstances will
not develop which could result in the AIMCO Operating Partnership being treated
as a publicly traded partnership.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, real property rents (as defined
by section 856 of the Code) and gain from the sale or disposition of real
property. The AIMCO Operating Partnership believes that more than 90% of its
gross income consists of qualifying income and expects that more than 90% of its
gross income in future tax years will consist of qualifying income. In such
event, even if the AIMCO Operating Partnership were characterized as a publicly
traded partnership, it would not be taxable as a corporation. If the AIMCO
Operating Partnership were characterized as a publicly traded partnership,
however, each OP Unitholder would be subject to special rules under section 469
of the Code. See "Limitations on Deductibility of Losses -- Passive Activity
Loss Limitation." No assurance can be given that the actual results of the AIMCO
Operating Partnership's operations for any one taxable year will enable it to
satisfy the qualifying income exception.
If the AIMCO Operating Partnership were characterized as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. Thus, the AIMCO
Operating Partnership would be subject to federal tax (and possibly state and
local taxes) on its net income, determined without reduction for any
distributions made to the OP Unitholders, at regular federal corporate income
tax rates, thereby reducing the amount of any cash available for distribution to
the OP Unitholders, which reduction could also materially and adversely impact
the liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and credit would not be
passed through to the OP Unitholders and the OP Unitholders would not be subject
to tax on the income earned by the AIMCO Operating Partnership. Distributions
received by an OP Unitholder from the AIMCO Operating Partnership, however,
would be treated as dividend income for federal income tax purposes, subject to
tax as ordinary income to the extent of current and accumulated earnings and
profits of the AIMCO Operating Partnership, and the excess, if any, as a
nontaxable return of capital to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest (without taking into account
Partnership liabilities), and thereafter as gain from the sale of a capital
asset. Characterization of the AIMCO Operating Partnership as an association or
publicly traded partnership taxable as a corporation would also result in the
termination of AIMCO's status as a REIT for federal income tax purposes which
would have a material adverse impact on AIMCO. See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- Tax Aspects of AIMCO's Investments in
Partnerships."
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No assurances can be given that the IRS would not challenge the status of
the AIMCO Operating Partnership as a "partnership" which is not "publicly
traded" for federal income tax purposes or that a court would not reach a result
contrary to such positions. Accordingly, each prospective investor is urged to
consult his tax advisor regarding the classification and treatment of the AIMCO
Operating Partnership as a "partnership" for federal income tax purposes.
The following discussion assumes that the AIMCO Operating Partnership is,
and will continue to be, classified and taxed as a partnership for federal
income tax purposes.
TAXATION OF OP UNITHOLDERS
In general, a partnership is treated as a "pass-through" entity for federal
income tax purposes and is not itself subject to federal income taxation. Each
partner of a partnership, however, is subject to tax on his allocable share of
partnership tax items, including partnership income, gains, losses, deductions,
and credits ("Partnership Tax Items") for each taxable year of the partnership
ending within or with such taxable year of the partner, regardless of whether he
receives any actual distributions from the partnership during the taxable year.
Generally, the characterization of any particular Partnership Tax Item is
determined at the partnership, rather than at the partner level, and the amount
of a partner's allocable share of such item is governed by the terms of the
partnership agreement.
No federal income tax will be payable by the AIMCO Operating Partnership.
Instead, each OP Unitholder will be (i) required to include in income his
allocable share of any AIMCO Operating Partnership income or gains and (ii)
entitled to deduct his allocable share of any AIMCO Operating Partnership
deductions or losses, but only to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest and subject to the "at risk"
and "passive activity loss" rules discussed below under the heading "Limitations
on the Deductibility of Losses." An OP Unitholder's allocable share of the AIMCO
Operating Partnership's taxable income may exceed the cash distributions to the
OP Unitholder for any year if the AIMCO Operating Partnership retains its
profits rather than distributing them.
ALLOCATIONS OF AIMCO OPERATING PARTNERSHIP PROFITS AND LOSSES
For federal income tax purposes, an OP Unitholder's allocable share of the
AIMCO Operating Partnership's Partnership Tax Items will be determined by the
AIMCO Operating Partnership Agreement if such allocations either have
"substantial economic effect" or are determined to be in accordance with the OP
Unitholder's interests in the AIMCO Operating Partnership. The manner in which
Partnership Tax Items of the AIMCO Operating Partnership are allocated is
described above under the heading "Description of OP Units--Allocations of Net
Income and Net Loss." If the allocations provided by the AIMCO Operating
Partnership Agreement were successfully challenged by the IRS, the
redetermination of the allocations to a particular OP Unitholder for federal
income tax purposes may be less favorable than the allocation set forth in the
AIMCO Operating Partnership Agreement.
TAX BASIS OF A PARTNERSHIP INTEREST
A partner's adjusted tax basis in his partnership interest is relevant,
among other things, for determining (i) gain or loss upon a taxable disposition
of his partnership interest, (ii) gain upon the receipt of partnership
distributions, and (iii) the limitations imposed on the use of partnership
deductions and losses allocable to such partner. Generally, the adjusted tax
basis of an OP Unitholder's interest in the AIMCO Operating Partnership is equal
to (A) the sum of the adjusted tax basis of the property contributed by the OP
Unitholder to the AIMCO Operating Partnership in exchange for an interest in the
AIMCO Operating Partnership and the amount of cash, if any, contributed by the
OP Unitholder to the AIMCO Operating Partnership, (B) reduced, but not below
zero, by the OP Unitholder's allocable share of AIMCO Operating Partnership
distributions, deductions, and losses, (C) increased by the OP Unitholder's
allocable share of AIMCO Operating Partnership income and gains, and (D)
increased by the OP Unitholder's allocable share of the AIMCO Operating
Partnership liabilities and decreased by the OP Unitholder's liabilities assumed
by the AIMCO Operating Partnership.
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CASH DISTRIBUTIONS
Cash distributions received from a partnership do not necessarily correlate
with income earned by the partnership as determined for federal income tax
purposes. Thus, an OP Unitholder's federal income tax liability in respect of
his allocable share of the AIMCO Operating Partnership taxable income for a
particular taxable year may exceed the amount of cash, if any, received by the
OP Unitholder from the AIMCO Operating Partnership during such year.
If cash distributions, including a "deemed" cash distribution as discussed
below, received by an OP Unitholder in any taxable year exceed his allocable
share of the AIMCO Operating Partnership taxable income for the year, the excess
will constitute, for federal income tax purposes, a return of capital to the
extent of such OP Unitholder's adjusted tax basis in his AIMCO Operating
Partnership interest. Such return of capital will not be includible in the
taxable income of the OP Unitholder, for federal income tax purposes, but it
will reduce, but not below zero, the adjusted tax basis of the AIMCO Operating
Partnership interest held by the OP Unitholder. If an OP Unitholder's tax basis
in his AIMCO Operating Partnership interest is reduced to zero, a subsequent
cash distribution received by the OP Unitholder will be subject to tax as
capital gain income, but only if, and to the extent that, such distribution
exceeds the subsequent positive adjustments, if any, to the tax basis of the OP
Unitholder's AIMCO Operating Partnership interest as determined at the end of
the taxable year during which such distribution is received. A decrease in an OP
Unitholder's share of the AIMCO Operating Partnership liabilities resulting from
the payment or other settlement of such liabilities is generally treated, for
federal income tax purposes, as a deemed cash distribution. A decrease in an OP
Unitholder's percentage interest in the AIMCO Operating Partnership, because of
the issuance by the AIMCO Operating Partnership of additional OP Units, or
otherwise, will decrease an OP Unitholder's share of nonrecourse liabilities of
the AIMCO Operating Partnership, if any, and thus, will result in a
corresponding deemed distribution of cash.
A non-pro rata distribution (or deemed distribution) of money or property
may result in ordinary income to an OP Unitholder, regardless of such OP
Unitholder's tax basis in his OP Units, if the distribution reduces such OP
Unitholder's share of the AIMCO Operating Partnership's "Section 751 Assets."
"Section 751 Assets" are defined by the Code to include "unrealized receivables"
or "substantially appreciated inventory". For this purpose, inventory is
substantially appreciated if its value exceeds 120% of its adjusted basis. Among
other things, "unrealized receivables" include amounts attributable to
previously claimed depreciation deductions on certain types of property. To the
extent that such a reduction in an OP Unitholder's share of Section 751 Assets
occurs, the AIMCO Operating Partnership will be deemed to have distributed a
proportionate share of the Section 751 Assets to the OP Unitholder followed by a
deemed exchange of such assets with the AIMCO Operating Partnership in return
for the non-pro rata portion of the actual distribution made to such OP
Unitholder. This deemed exchange will generally result in the realization of
ordinary income under Section 751(b) by the OP Unitholder. Such income will
equal the excess of (1) the non-pro rata portion of such distribution over (2)
the OP Unitholder's tax basis in such OP Unitholder's share of such Section 751
Assets deemed relinquished in the exchange.
TAX CONSEQUENCES UPON CONTRIBUTION OF PROPERTY TO THE AIMCO OPERATING
PARTNERSHIP
Generally, Section 721 of the Code provides that neither the Contributing
Partner nor the AIMCO Operating Partnership will recognize a gain or loss, for
federal income tax purposes, upon a contribution of property to the AIMCO
Operating Partnership in exchange for OP Units. Notwithstanding this general
rule of nonrecognition, the Contributing Partner may recognize a gain where the
property transferred is subject to liabilities, or the AIMCO Operating
Partnership assumes liabilities in connection with a transfer of property, and
the amount of such liabilities exceeds the amount of the AIMCO Operating
Partnership liabilities allocated to the Contributing Partner as determined
immediately after the transfer. Such excess is treated by the Contributing
Partner, for federal income tax purposes, as the receipt of a deemed
distribution of cash to the Contributing Partner from the AIMCO Operating
Partnership. If a person transfers to the AIMCO Operating Partnership an
interest in another partnership (the "Underlying Partnership") in exchange for
an OP Unit, the person will be treated, for federal income tax purposes, as
having transferred to the AIMCO Operating Partnership his allocable share of the
liabilities of the Underlying Partnership, which could result in,
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or increase the amount of, a deemed cash distribution. As discussed above, such
deemed cash distributions are generally treated as a nontaxable return of
capital to the extent of the Contributing Partner's adjusted tax basis in his OP
Units and thereafter as gain from the sale of such partnership interest.
If a Contributing Partner receives or is deemed to receive for federal
income tax purposes, cash in addition to OP Units upon the contribution of
property to the AIMCO Operating Partnership, the transaction will likely be
treated as part contribution of property and part sale of property. In such
event, the Contributing Partner will recognize gain or loss with respect to the
portion of the property that is deemed sold to the AIMCO Operating Partnership.
If a Contributing Partner transfers property to the AIMCO Operating
Partnership in exchange for an OP Unit and the adjusted tax basis of such
property differs from its fair market value, AIMCO Operating Partnership Tax
Items must be allocated in a manner such that the Contributing Partner is
charged with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of the contribution. Where a
partner contributes cash to a partnership that holds appreciated property, the
Treasury Regulations provide for a similar allocation of such items to the other
partners. These rules may apply to a contribution by AIMCO to the AIMCO
Operating Partnership of cash proceeds received by AIMCO from the offering of
its stock. Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the OP Unitholders. The general purpose underlying this provision is to
specially allocate certain Partnership Tax Items in order to place both the
noncontributing and Contributing Partners in the same tax position that they
would have been in had the Contributing Partner contributed property with an
adjusted tax basis equal its fair market value. Treasury Regulations provide the
AIMCO Operating Partnership with several alternative methods and allow the AIMCO
Operating Partnership to adopt any other reasonable method to make allocations
to reduce or eliminate Book-Tax Differences. The AIMCO GP, in its discretion and
in a manner consistent with the Treasury Regulations, will select and adopt a
method of allocating AIMCO Operating Partnership Tax Items, including the
remedial allocation method, for purposes of eliminating such disparities.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased amounts of taxable income
and gain on the sale by the AIMCO Operating Partnership or other Subsidiary
Partnerships of the contributed properties. Accordingly, in the event the AIMCO
Operating Partnership disposes of contributed property, income attributable to
the Book-Tax Difference of such contributed property generally will be allocated
to the Contributing Partner, and the other OP Unitholders generally will be
allocated only their share of gains attributable to appreciation, if any,
occurring after the contribution of the contributed property. These incremental
allocations of income will not result in additional cash distributions to the
Contributing Partner, with the result that the Contributing Partner may not
necessarily receive cash sufficient to pay the taxes attributable to such
income. These allocations will tend to eliminate the Book-Tax Differences with
respect to the contributed property over the life of the AIMCO Operating
Partnership. However, the special allocation rules of Section 704(c) do not
always entirely rectify the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed property in the hands of the AIMCO Operating
Partnership may cause a noncontributing OP Unitholder to be allocated lower
amounts of depreciation and other deductions for tax purposes than would be
allocated to such OP Unitholder if the contributed property had a tax basis
equal to its fair market value at the time of contribution, and possibly to be
allocated taxable gain in the event of a sale of the contributed property in
excess of the economic or book income allocated to it as a result of such sale.
This may cause noncontributing OP Unitholders to recognize taxable income in
excess of cash proceeds.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES
Basis Limitation. To the extent that an OP Unitholder's allocable share of
AIMCO Operating Partnership deductions and losses exceeds his adjusted tax basis
in his AIMCO Operating Partnership interest at the end of the of the taxable
year in which the losses and deductions flow through, the excess losses and
deductions cannot be utilized, for federal income tax purposes, by the OP
Unitholder in such year. The excess losses and deductions may, however, be
utilized in the first succeeding taxable year in which, and to the extent
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that, there is an increase in the tax basis of the AIMCO Operating Partnership
interest held by such OP Unitholder, but only to the extent permitted under the
"at risk" and "passive activity loss" rules discussed below.
"At Risk" Limitation. Under the "at risk" rules of section 465 of the Code,
a noncorporate taxpayer and a closely held corporate taxpayer are generally not
permitted to claim a deduction, for federal income tax purposes, in respect of a
loss from an activity, whether conducted directly by the taxpayer or through an
investment in a partnership, to the extent that the loss exceeds the aggregate
dollar amount which the taxpayer has "at risk" in such activity at the close of
the taxable year. To the extent that losses are not permitted to be used in any
taxable year, such losses may be carried over to subsequent taxable years and
may be claimed as a deduction by the taxpayer if, and to the extent that, the
amount which the taxpayer has "at risk" is increased. Provided certain
requirements are met, the at risk rules generally do not apply to losses arising
from any activity which constitutes "the holding of real property," which the
holding of an OP Unit should constitute.
"Passive Activity Loss" Limitation. The passive activity loss rules of
section 469 of the Code limit the use of losses derived from passive activities,
which generally includes an investment in limited partnership interests such as
the OP Units. If an investment in an OP Unit is treated as a passive activity,
an OP Unitholder who is an individual investor, as well as certain other types
of investors, would not be able to use losses from the AIMCO Operating
Partnership to offset nonpassive activity income, including salary, business
income, and portfolio income (e.g., dividends, interest, royalties, and gain on
the disposition of portfolio investments) received during the taxable year.
Passive activity losses that are disallowed for a particular taxable year may,
however, be carried forward to offset passive activity income earned by the OP
Unitholder in future taxable years. In addition, such disallowed losses may be
claimed as a deduction, subject to the basis and at risk limitations discussed
above, upon a taxable disposition of an OP Unit by the OP Unitholder, regardless
of whether such OP Unitholder has received any passive activity income during
the year of disposition.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, each OP Unitholder would be required to treat any loss derived from
the AIMCO Operating Partnership separately from any income or loss derived from
any other publicly traded partnership, as well as from income or loss derived
from other passive activities. In such case, any net losses or credits
attributable to the AIMCO Operating Partnership which are carried forward may
only be offset against future income of the AIMCO Operating Partnership.
Moreover, unlike other passive activity losses, suspended losses attributable to
the AIMCO Operating Partnership would only be allowed upon the complete
disposition of the OP Unitholder's "entire interest" in the AIMCO Operating
Partnership (rather than upon the disposition of an interest in an "activity").
SECTION 754 ELECTION
The AIMCO Operating Partnership has made the election permitted by Section
754 of the Code. Election is irrevocable without the consent of the IRS. The
election will generally permit a purchaser of OP Units, such as AIMCO when it
acquires AIMCO OP Units from OP Unitholders, to adjust its share of the basis in
the AIMCO Operating Partnership's properties pursuant to Section 743(b) of the
Code to fair market value (as reflected by the value of consideration paid for
the OP Units), as if such purchaser had acquired a direct interest in the AIMCO
Operating Partnership assets. The Section 743(b) adjustment is attributed solely
to a purchaser of OP Units and is not added to the bases of the AIMCO Operating
Partnership's assets associated with all of the OP Unitholders in the AIMCO
Operating Partnership.
DEPRECIATION
Section 168(i)(7) of the Code provides that in the case of property
transferred to a partnership in a Section 721 transaction, the transferee shall
be treated as the transferor for purposes of computing the depreciation
deduction with respect to so much of the basis in the hands of the transferee as
does not exceed the adjusted basis in the hands of the transferor. The effect of
this rule would be to continue the historic basis, placed in service dates and
methods with respect to the depreciation of the properties being contributed by
a
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Contributing Partner to the AIMCO Operating Partnership in exchange for OP
Units. However, an acquiror of OP Units that obtains a Section 743(b) adjustment
by reason of such acquisition (see "Section 754 Election," above) generally will
be allowed depreciation with respect to such adjustment beginning as of the date
of the exchange as if it were new property placed in service as of that date.
SALE, REDEMPTION, OR EXCHANGE OF OP UNITS
An OP Unitholder will recognize a gain or loss upon a sale of an OP Unit, a
redemption of an OP Unit for cash, an exchange of an OP Unit for shares of AIMCO
Stock, or other taxable disposition of an OP Unit. Gain or loss recognized upon
a sale or exchange of an OP Unit will be equal to the difference between (i) the
sum of the amount realized in the transaction, which, in the case of the receipt
of shares of AIMCO Stock will be an amount equal to their fair market value at
the time that the transaction is consummated, plus the amount of AIMCO Operating
Partnership liabilities allocable to the OP Unit at such time and (ii) the OP
Unitholder's tax basis in the OP Unit disposed of, which tax basis will be
adjusted for the OP Unitholder's allocable share of the AIMCO Operating
Partnership's income or loss for the taxable year of the disposition. In the
case of a gift of an OP Unit, an OP Unitholder will be deemed to have an amount
realized equal to the amount of the AIMCO Operating Partnership's nonrecourse
liabilities allocable to such OP Unit, and to the extent that the amount
realized exceeds the OP Unitholder's basis for the OP Unit disposed of, such OP
Unitholder will recognize gain for federal income tax purposes. The tax
liability resulting from the gain recognized on a disposition of an OP Unit
could exceed the amount of cash and the fair market value of property received.
If the AIMCO Operating Partnership redeems an OP Unitholder's OP Units for
cash (which is not contributed by AIMCO to effect the redemption), the tax
consequences generally would be the same as described in the preceding
paragraphs, except that if the AIMCO Operating Partnership redeems less than all
of an OP Unitholder's OP Units, the OP Unitholder would recognize no taxable
loss and would recognize taxable gain only to the extent that the cash, plus the
amount of AIMCO Operating Partnership liabilities allocable to the redeemed OP
Units, exceeded the OP Unitholder's adjusted tax basis in all of such OP
Unitholder's OP Units immediately before the redemption.
Under the recently enacted Internal Revenue Service Restructuring and
Reform Act of 1988, capital gains recognized by individuals and certain other
noncorporate taxpayers upon the sale or disposition of an OP Unit will be
subject to a maximum federal income tax rate of 20% if the OP Unit is held for
more than 12 months and will be taxed at ordinary income tax rates if the OP
Unit is held for 12 months or less. Generally, gain or loss recognized by an OP
Unitholder on the sale or other taxable disposition of an OP Unit will be
taxable as capital gain or loss. However, to the extent that the amount realized
upon the sale or other taxable disposition of an OP Unit attributable to an OP
Unitholder's share of "unrealized receivables" of the AIMCO Operating
Partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
amounts attributable to previously claimed depreciation deductions on certain
types of property. In addition, the maximum federal income tax rate for net
capital gains attributable to the sale of depreciable real property (which may
be determined to include an interest in a partnership such as the AIMCO
Operating Partnership) held for more than 12 months is currently 25% (rather
than 20%) to the extent of previously claimed depreciation deductions that would
not be treated as "unrealized receivables."
TERMINATION OF THE AIMCO OPERATING PARTNERSHIP
In the event of the dissolution of the AIMCO Operating Partnership, a
distribution of AIMCO Operating Partnership property (other than money and
marketable securities) will not result in taxable gain to an OP Unitholder
(except to the extent provided in Section 737 of the Code for liquidations
occurring within seven years of the date of contribution by an OP Unitholder of
property to the AIMCO Operating Partnership), and the OP Unitholder will hold
such distributed property with a basis equal to the adjusted basis of such OP
Units exchanged therefor, reduced by any money distributed in liquidation.
Further, the liquidation of the AIMCO Operating Partnership will be taxable to a
holder of Units to the extent that the value of any money and marketable
securities distributed in liquidation (including any money deemed distributed as
a result of relief from liabilities) exceeds such OP Unitholder's tax basis in
his OP Units.
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ALTERNATIVE MINIMUM TAX
The Code contains different sets of minimum tax rules applicable to
corporate and noncorporate investors. The discussion below relates only to the
alternative minimum tax applicable to noncorporate taxpayers. Accordingly,
corporate investors should consult with their tax advisors with respect to the
effect of the corporate minimum tax provisions that may be applicable to them.
Noncorporate taxpayers are subject to an alternative minimum tax to the extent
the tentative minimum tax ("TMT") exceeds the regular income tax otherwise
payable. The rate of tax imposed on the alternative minimum taxable income
("AMTI") in computing TMT is 26% on the first $175,000 of alternative minimum
taxable income in excess of an exemption amount and 28% on any additional
alternative minimum taxable income of noncorporate investors. In general, AMTI
consists of the taxpayer's taxable income, determined with certain adjustments,
plus his items of tax preference. For example, alternative minimum taxable
income is calculated using an alternative cost recovery (depreciation) system
that is not as favorable as the methods provided for under Section 168 of the
Code which the AIMCO Operating Partnership will use in computing its income for
regular federal income tax purposes. Accordingly, an OP Unitholder's AMTI
derived from the AIMCO Operating Partnership may be higher than such OP
Unitholder's share of the AIMCO Operating Partnership's net taxable income.
Prospective investors should consult with their tax advisors as to the impact of
an investment in OP Units on their liability for the alternative minimum tax.
INFORMATION RETURNS AND AUDIT PROCEDURES
The AIMCO Operating Partnership will use all reasonable efforts to furnish
to each OP Unitholder within 90 days after the close of each taxable year of the
AIMCO Operating Partnership, certain tax information, including a Schedule K-1,
which sets forth each OP Unitholder's allocable share of the AIMCO Operating
Partnership's Taxable Items. In preparing this information the AIMCO GP will use
various accounting and reporting conventions to determine the respective OP
Unitholder's allocable share of Partnership Tax Items. There is no assurance
that any such conventions will yield a result which conforms to the requirements
of the Code, the Treasury Regulations or administrative interpretations of the
IRS. The AIMCO GP cannot assure a current or prospective OP Unitholder that the
IRS will not successfully contend in court that such accounting and reporting
conventions are impermissible.
No assurance can be given that the AIMCO Operating Partnership will not be
audited by the IRS or that tax adjustments will not be made. Further, any
adjustments in the AIMCO Operating Partnership's tax returns will lead to
adjustments in OP Unitholders' tax returns and may lead to audits of their
returns and adjustments of items unrelated to the AIMCO Operating Partnership.
Each OP Unitholder would bear the cost of any expenses incurred in connection
with an examination of such OP Unitholder's personal tax return.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of Partnership Tax Items generally
are determined at the partnership level in a unified partnership proceeding
rather than in separate proceedings with the partners. The Code provides for one
partner to be designated as the Tax Matters Partner for these purposes.
The Tax Matters Partner is authorized, but not required, to take certain
actions on behalf of the AIMCO Operating Partnership and OP Unitholders and can
extend the statute of limitations for assessment of tax deficiencies against OP
Unitholders with respect to the AIMCO Operating Partnership Tax Items. The Tax
Matters Partner may bind an OP Unitholder with less than a 1% profits interest
in the AIMCO Operating Partnership to a settlement with the IRS, unless such OP
Unitholder elects, by filing a statement with the IRS, not to give such
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review (to which all the OP Unitholders are bound) of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, such review may be sought by any OP Unitholder having at least a 1%
interest in the profits of the AIMCO Operating Partnership or by OP Unitholders
having in the aggregate at least a 5% profits interest. However, only one action
for judicial review will go forward, and each OP Unitholder with an interest in
the outcome may participate.
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TAXATION OF FOREIGN OP UNITHOLDERS
A Non-U.S. Holder will be considered to be engaged in a United States trade
or business on account of its ownership of an OP Unit. As a result, a Non-U.S.
Holder will be required to file federal tax returns with respect to its
allocable share of the AIMCO Operating Partnerships income which is effectively
connected to its trade or business. A Non-U.S. Holder that is a corporation may
also be subject to United States branch profit tax at a rate of 30%, in addition
to regular federal income tax, on its allocable share of such income. Such a tax
may be reduced or eliminated by an income tax treaty between the United States
and the country with respect to which the Non-U.S. Holder is resident for tax
purposes. Non-U.S. Holders are advised to consult their tax advisors regarding
the effects an investment in the AIMCO Operating Partnership may have on
information return requirements and other United States and non-United States
tax matters, including the tax consequences of an investment in the AIMCO
Operating Partnership for the country or other jurisdiction of which such
Non-U.S. Holder is a citizen or in which such Non-U.S. Holder resides or is
otherwise located.
OTHER TAX CONSEQUENCES
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the federal laws and interpretations thereof
could adversely affect an investment in AIMCO or the AIMCO Operating
Partnership. For example, a proposal issued by President Clinton on February 2,
1998, if enacted into law, may adversely affect the ability of AIMCO to expand
the present activities of its Management Subsidiaries. It cannot be predicted
whether, when, in what forms, or with what effective dates, the tax laws
applicable to AIMCO or the AIMCO Operating Partnership, or an investment in
AIMCO or the AIMCO Operating Partnership, will be changed.
STATE, LOCAL AND FOREIGN TAXES
The AIMCO Operating Partnership, OP Unitholders, AIMCO and AIMCO
stockholders may be subject to state, local or foreign taxation in various
jurisdictions, including those in which it or they transact business, own
property or reside. It should be noted that the AIMCO Operating Partnership owns
properties located in a number of states and local jurisdictions, and the AIMCO
Operating Partnership and OP Unitholders may be required to file income tax
returns in some or all of those jurisdictions. The state, local or foreign tax
treatment of the AIMCO Operating Partnership and OP Unitholders and of AIMCO and
its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective investors should consult their own
tax advisors regarding the application and effect of state, local foreign tax
laws on an investment in the AIMCO Operating Partnership or AIMCO.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made by Apartment Investment and
Management Company with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until our offering is completed.
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- Apartment Investment and Management Company's Annual Report on Form
10-K/A for the year ended December 31, 1997;
- Apartment Investment and Management Company's Quarterly Reports on
Form 10-Q/A and Form 10-Q for the quarters ended March 31, 1998 and
June 30, 1998, respectively;
- Apartment Investment and Management Company's Current Reports on Form
8-K, dated December 23, 1997 (and Amendment No. 1 thereto filed
February 6, 1998 and Amendment No. 2 thereto filed May 22, 1998),
January 31, 1998, March 17, 1998 (and Amendment No. 1 thereto filed
April 3, 1998, Amendment No. 2 thereto filed June 22, 1998, Amendment
No. 3 thereto filed July 2, 1998, Amendment No. 4 thereto filed August
6, 1998, Amendment No. 5 thereto filed September 4, 1998 and Amendment
No. 6 thereto filed September 25, 1998) and September 2, 1998;
- the description of Apartment Investment and Management Company's
capital stock contained in its Registration Statement on Form 8-A
(File No. 1-13232) filed July 19, 1994, including any amendment or
reports filed for the purpose of updating such description; and
- AIMCO Properties, L.P.'s Registration Statement on Form 10, filed
September 4, 1998.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address and telephone number:
Corporate Secretary
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
(303) 757-8101
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of the document.
LEGAL MATTERS
Certain matters as to Maryland law and the validity of the Class A Common
Stock and the Preferred Stock will be passed upon for AIMCO by Piper & Marbury
L.L.P., Baltimore, Maryland. Certain matters as to the validity of the OP Units
will be passed upon for the AIMCO Operating Partnership by Skadden, Arps, Slate,
Meagher & Flom LLP.
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EXPERTS
The consolidated financial statements of AIMCO included in AIMCO's Annual
Report on Form 10-K/A for the year ended December 31, 1997, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. The consolidated
financial statements of the AIMCO Operating Partnership as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in the AIMCO Operating Partnership's Registration Statement on Form 10
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. The
consolidated financial statements of Ambassador Apartments, Inc. as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, included in AIMCO's Current Report on Form 8-K dated March 17, 1998
(as amended on April 3, 1998) and the consolidated financial statements of
Ambassador Apartments, Inc. as of December 31, 1996 and 1995, and for each of
the two years in the period ended December 31, 1996 and the period from August
31, 1994 through December 31, 1994, and the combined financial statements of
Prime Properties (Predecessor to Ambassador Apartments, Inc.) for the period
from January 1, 1994 through August 30, 1994, included in Amendment No. 1 to
AIMCO's Current Report on Form 8-K dated December 23, 1997, filed on February 6,
1998, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their reports thereon included therein and incorporated herein by reference.
The consolidated financial statements of Insignia Financial Group, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17,
1998 (and Amendment No. 1 thereto filed April 3, 1998), have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
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APPENDIX A-1
GLOSSARY
Unless the context requires otherwise, the following terms used in this
Prospectus have the respective meanings set forth below:
"1997 Housing Act" means the Multifamily Assisted Housing Reform and
Affordability Act of 1997.
"ACMs" means asbestos-containing materials.
"ADA" means the Americans with Disabilities Act of 1990.
"affordable" means, with respect to apartment units or residential
properties, that such units or properties benefit from an interest rate or
rental subsidy or are otherwise subject to governmental programs intended to
provide housing to persons with low or moderate incomes.
"Aggregate Cash Amount" means the aggregate amount that AIMCO elects to pay
in cash to the Insignia stockholders, pursuant to the Insignia Merger; provided,
however, that the Aggregate Cash Amount may not exceed the lesser of (i)
$15,000,000 and (ii) the product of (x) $36.50 less the AIMCO Index Price,
multiplied by (y) the sum of the number of shares of Insignia common stock
outstanding at the Effective Time plus the number of shares of Insignia common
stock for which outstanding Insignia Convertible Securities are exercisable,
whether or not vested, at the Effective Time.
"AIMCO" means Apartment Investment and Management Company, a Maryland
corporation.
"AIMCO Board" means the board of directors of AIMCO.
"AIMCO GP" means AIMCO-GP, Inc., a wholly owned subsidiary of AIMCO and the
general partner of the AIMCO Operating Partnership.
"AIMCO Index Price" means the average trading price of Class A Common Stock
over the 20-day period ended five trading days prior to the Effective Time, but
in no event greater than $38.00.
"AIMCO IPO" means AIMCO's initial public offering of Class A Common Stock
in July 1994.
"AIMCO Operating Partnership" means AIMCO Properties, L.P., a Delaware
limited partnership.
"AIMCO Operating Partnership Agreement" means the agreement of limited
partnership of the AIMCO Operating Partnership.
"AIMCO Properties" means the Managed Properties, Owned Properties and
Equity Properties.
"AIMCO Stock" means the Class A Common Stock and the Preferred Stock.
"Ambassador" means the Ambassador Apartments, Inc.
"Ambassador Common Stock" means the common stock, par value $.01 per share,
of Ambassador.
"Ambassador Merger" means the merger of Ambassador with and into AIMCO on
May 8, 1998.
"AMIT" means Angeles Mortgage Investment Trust.
"AMTI" means alternative minimum taxable income.
"ANHI" means AIMCO/NHP Holdings, Inc.
"Assignee" means any person to whom one or more OP Units have been
transferred.
"Bank of America" means Bank of America National Trust and Savings
Association.
"Base Rate" means quarterly cash dividends per share equal to $1.78125.
"BOA Credit Facility" means the $50 million unsecured revolving credit
facility entered into in January 1998 between the Company, Bank of America, and
BankBoston, N.A.
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"Book-Tax Difference" means, generally, the difference between the fair
market value of the contributed property at the time of contribution, and the
adjusted tax basis of such property at the time of contribution.
"Built-in Gain" means to be subject to tax at the highest regular corporate
tax rate on the excess, if any, of the fair market value over the adjusted basis
of any particular asset as of the beginning of a ten-year period.
"Bylaws" means the bylaws of AIMCO.
"California Actions" means the two complaints filed in Superior Court of
the State of California against the Company and the J.W. English Companies.
"Capital Replacement" means capitalized spending which maintains a
property.
"Charter" means AIMCO's charter.
"City of Austin" means Austin, Texas.
"CK" means CK Services, Inc.
"CK Contribution Agreement" means the Contribution Agreement, dated January
31, 1998, among AIMCO, CK and the stockholders of CK.
"Class A Common Stock" means the Class A Common Stock, par value $.01 per
share, of AIMCO.
"Class B Common Stock" means the Class B Common Stock, par value $.01 per
share, of AIMCO.
"Class B Parity Stock" means capital stock of AIMCO that ranks on parity
with Class B Preferred Stock with respect to payments of dividends or upon
liquidation, dissolution, winding up or otherwise.
"Class B Partnership Preferred Units" means the Class B Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class B Preferred Ownership Limit" means a number of shares of Class B
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment companies registered
under the Investment Company Act of 1940 and Mr. Considine) of the aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class B Preferred Stock that are
owned by such holder.
"Class B Preferred Stock" means the Class B Cumulative Convertible
Preferred Stock, par value $.01 per share, of AIMCO.
"Class C Junior Stock" means Common Stock and Class E Preferred Stock, if
any, to be issued in the Insignia Merger, and any other class or series of
capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class C Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class C Liquidation Preference" means the liquidation preference of $25
per share on the Class C Preferred Stock.
"Class C Parity Stock" means the Class B Preferred Stock, the Class D
Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and
any other class or series of capital stock of AIMCO, if, pursuant to the
specific terms of such class of stock or series, the holders of such class of
stock or series and the Class C Preferred Stock shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or priority
one over the other.
"Class C Partnership Preferred Units" means the Class C Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class C Preferred Ownership Limit" means a number of shares of Class C
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment
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companies registered under the Investment Company Act of 1940 and Mr. Considine)
of the aggregate value of all shares of capital stock of AIMCO over (ii) the
aggregate value of all shares of capital stock of AIMCO other than Class C
Preferred Stock that are owned by such holder.
"Class C Preferred Stock" means the Class C Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class C Senior Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class or series shall be entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Class C Preferred Stock.
"Class D Junior Stock" means Common Stock and Class E Preferred Stock, if
any, to be issued in the Insignia Merger, and any other class or series of
capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class D Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class D Liquidation Preference" means the liquidation preference of $25
per share on the Class D Preferred Stock.
"Class D Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and
any other class or series of capital stock of AIMCO, if, pursuant to the
specific terms of such class of stock or series, the holders of such class of
stock or series and the Class D Preferred Stock shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or priority
one over the other.
"Class D Partnership Preferred Units" means the Class D Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class D Preferred Ownership Limit" means a number of shares of Class D
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment companies registered
under the Investment Company Act of 1940 and Mr. Considine) of the aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class D Preferred Stock that are
owned by such holder.
"Class D Preferred Stock" means the Class D Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class D Senior Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class or series shall be entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Class D Preferred Stock.
"Class E Call Date" means the date specified for redemption by AIMCO in a
notice sent to holders of Class E Preferred Stock.
"Class E Conversion Date" means the date on which the Special Dividend is
paid to the holders of the Class E Preferred Stock, on which each share of Class
E Preferred Stock will be automatically converted into one share of Class A
Common Stock without any action of AIMCO or the holder of such share.
"Class E Junior Stock" means Common Stock, and any other class or series of
capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class E Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class E Liquidation Preference" means the liquidation preference of $1 per
share plus the Special Dividend if such dividend is unpaid on the date of the
final distribution to such holders.
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"Class E Parity Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class or series of stock and the Class E Preferred Stock shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other.
"Class E Partnership Preferred Units" means the Class E Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class E Preferred Stock" means Class E Preferred Stock, par value $.01 per
share, of AIMCO.
"Class E Senior Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class H Preferred Stock and any other class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class or series shall be entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Class E Preferred Stock.
"Class G Junior Stock" means the Common Stock, Class E Preferred Stock if
issued in the Insignia Merger, and any other class or series of capital stock of
AIMCO, if, pursuant to the specific terms of such class or series of stock, the
holders of the Class G Preferred Stock are entitled to the receipt of dividends
or of amounts distributable upon liquidation, dissolution, and winding-up in
preference or priority to the holders of shares of such class or series.
"Class G Liquidation Preference" means the liquidation preference of $25
per share on the Class G Preferred Stock.
"Class G Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock and
any other class or series of stock of AIMCO, if, pursuant to the specific terms
of such class of stock or series, the holders of such class of stock or series
and the Class G Preferred Stock shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other.
"Class G Partnership Preferred Units" means the Class G Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class G Preferred Ownership Limit" means a number of shares of Class G
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment companies registered
under the Investment Company Act of 1940 and Mr. Considine) of the aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class G Preferred Stock that are
owned by such holder.
"Class G Preferred Stock" means the Class G Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class G Senior Stock" means any class or series of capital stock of AIMCO
which if, pursuant to the specific terms of such class of stock or series, the
holders of such class or series shall be entitled to the receipt of dividends of
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class G Preferred Stock.
"Class H Junior Stock" means the Common Stock, Class E Preferred Stock if
issued in the Insignia Merger, and any other class or series of capital stock of
AIMCO, if, pursuant to the specific terms of such class or series of stock, the
holders of the Class H Preferred Stock are entitled to the receipt of dividends
or of amounts distributable upon liquidation, dissolution, and winding-up in
preference or priority to the holders of shares of such class or series.
"Class H Liquidation Preference" means the liquidation preference of $25
per share on the Class H Preferred Stock.
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"Class H Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock and
any other class or series of stock of AIMCO, if, pursuant to the specific terms
of such class of stock or series, the holders of such class of stock or series
and the Class H Preferred Stock shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other.
"Class H Partnership Preferred Units" means the Class H Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class H Preferred Ownership Limit" means a number of shares of Class H
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment companies registered
under the Investment Company Act of 1940 and Mr. Considine) of the aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class H Preferred Stock that are
owned by such holder.
"Class H Preferred Stock" means the Class H Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class H Senior Stock" means any class or series of capital stock of AIMCO
which if, pursuant to the specific terms of such class of stock or series, the
holders of such class or series shall be entitled to the receipt of dividends of
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class H Preferred Stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Security and Exchange Commission.
"Common OP Units" means Partnership Common Units of the AIMCO Operating
Partnership.
"Common Stock" means the Class A Common Stock and the Class B Common Stock.
"Common OP Unitholders" means the holders of Common OP Units.
"Company" means AIMCO, together with its consolidated subsidiaries,
including the AIMCO Operating Partnership.
"Company Predecessors" means AIMCO and Property Asset Management, L.L.C.,
and its affiliated companies and PDI Realty Enterprises, Inc.
"Complaint" means the purported class and derivative complaint filed in
California Superior Court in the County of San Mateo by persons claiming to own
limited partner interests in the Insignia Partnerships against Insignia, the
Insignia GPs, AIMCO, certain persons and entities who purportedly formerly
controlled the Insignia GPs and additional entities affiliated with, and
individuals who are officers, directors or principals of, several of the
defendants.
"Consolidated Amended Complaint" means the consolidated amended complaint
filed by plaintiffs on February 25, 1998 relating to the California Actions.
"Contributing Partner" means a person contributing property to the AIMCO
Operating Partnership in exchange for OP Units.
"control share acquisition" means the acquisition of control shares,
subject to certain exceptions.
"control shares" means voting shares of stock that, if aggregated with all
other shares of stock previously acquired by that person, would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority or (iii) a majority or more of
all voting power. Control shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained stockholder
approval.
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"Convertible Securities" means warrants, options, convertible debt
securities, equity securities, contingent rights or other similar securities
upon which the Securities may be exchanged, exercised or converted.
"Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP, counsel to AIMCO.
"Credit Facilities" means the WMF Credit Facility and the BOA Credit
Facility.
"Current Market Price" per share of Class A Common Stock on any date means
the average of the daily market prices of a share of Class A Common Stock for
the five consecutive trading days preceding such date. The market price for each
such day shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Class A Common Stock is not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Class A Common Stock is listed or admitted to
trading or, if the Class A Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted price, or if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Class A Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Class A Common Stock selected by the AIMCO Board.
"Debt Coverage Ratio" means the ratio of EBITDA (less a provision of
approximately $300 per owned apartment) to debt.
"Delaware LP Act" means the Delaware Revised Uniform Limited Partnership
Act, as amended from time to time, or any successor to such statute.
"Distribution" means the transfer of the remaining business of Insignia to
Holdings and the distribution of all of the capital stock of Holdings to
Insignia's stockholders prior to the Insignia Merger.
"Dividend Payment Date" means any date on which cash dividends are paid on
the Class A Common Stock.
"DOJ" means the U.S. Department of Justice.
"domestically controlled REIT" means a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Holders.
"Effective Time" means the effective time of the Insignia Merger.
"Eligible Class B Shares" means the number of shares of Class B Common
Stock outstanding as of the Year-end Test Date which become eligible for
automatic conversion into an equal number of shares of Class A Common Stock
(subject to the Ownership Limit).
"English Acquisition" means the Company's acquisition in November 1996 of
certain partnership interests, real estate and related assets owned by the J.W.
English Companies.
"English Partnerships" means 31 limited partnerships, interests in which
were purchased by the Company from the J.W. English Companies pursuant to the
English Acquisition.
"English Tender Offers" means the separate tender offers made by the AIMCO
Operating Partnership to the limited partners of 25 of the English Partnerships.
"EPA" means the U.S. Environmental Protection Agency.
"Equity Properties" means the apartment properties in which AIMCO holds an
equity interest.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.
"Federal Action" means the class action lawsuit filed in November 1996 by
purported limited partners of certain of the Tender Offer English Partnerships
against the Company and J.W. English in the U.S. District Court for the Northern
District of California.
"FFO" means funds from operations.
"FFO Per Share" or "Funds from Operating Per Share" means, for any period,
(i) net income (loss), computed in accordance with generally accepted accounting
principles, excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures, less any preferred stock
dividend payments, divided by (ii) the sum of (a) the number of shares of the
Class A Common Stock outstanding on the last day of such period (excluding any
shares of the Class A Common Stock into which shares of the Class B Common Stock
shall have been converted as a result of the conversion of shares of the Class B
Common Stock on the last day of such period) and (b) the number of shares of the
Class A Common Stock issuable to acquire units of limited partnership that (x)
may be tendered for redemption in any limited partnership in which AIMCO serves
as general partner and (y) are outstanding on the last day of such period.
"FHAA" means the Fair Housing Amendments Act of 1988.
"FIRPTA" means Foreign Investment in Real Property Tax Act of 1980.
"FNMA" means the Federal National Mortgage Association.
"GAAP" means generally accepted accounting principles.
"GMAC" means General Motors Acceptance Corporation.
"GMAC Loans" means the 93 loans made by GMAC as of June 30, 1998 with an
aggregate outstanding principal balance of $420.1 million to property owning
partnerships of the Company, each of which is secured by the Owned Property of
such partnership.
"HAP Contracts" means Housing Assistance Payment Contracts.
"High Performance Units" means the OP Units designated as Class I High
Performance Units.
"Holdings" means Insignia/ESG Holdings, Inc.
"HUD" means the U.S. Department of Housing and Urban Development.
"Indemnitee" means the AIMCO Operating Partnership's directors and
officers.
"Insignia" means the Insignia Financial Group, Inc.
"Insignia Convertible Securities" means any and all securities issued by
Insignia or any subsidiary of Insignia (excluding stock options issued under the
Insignia 1992 Stock Incentive Plan, as amended, and the Insignia 1995
Non-Employee Director Stock Option Plan) which are exercisable, convertible or
exchangeable for or into shares of Insignia common stock, but specifically
excluding the Convertible Preferred Securities.
"Insignia GPs" means the general partners of the Insignia Partnerships.
"Insignia Merger" means the merger of Insignia with and into AIMCO.
"Insignia Merger Agreement" means the merger agreement between AIMCO, the
AIMCO Operating Partnership, Insignia and Holdings pursuant to which Insignia
will be merged with and into AIMCO.
"Insignia Partnerships" means the limited partnerships whose general
partners are affiliates of Insignia.
"Insignia Reorganization" means the transfer of certain assets and
liabilities of Insignia to the Unconsolidated Subsidiaries.
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"Interested Stockholder" means any person who beneficially owns 10% or more
of the voting power of the corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation.
"IPT" means Insignia Properties Trust, a Maryland REIT, which is a majority
owned subsidiary of Insignia.
"IPT Shares" means the shares of beneficial interest of IPT, par value $.01
per share.
"IRS" means the Internal Revenue Service.
"J.W. English Companies" means J.W. English, a Houston, Texas-based real
estate syndicator and developer, and certain affiliated entities.
"LDP" means a limited denial of participation by any HUD office.
"Liquidating Event" means any of the following: (i) December 31, 2093; (ii)
an event of withdrawal, as defined in the Delaware LP Act (including, without
limitation, bankruptcy), of the sole AIMCO GP unless, within ninety (90) days
after the withdrawal, a majority in interest (as such phrase is used in Section
17-801(3) of the Delaware LP Act) of the remaining OP Unitholders agree in
writing, in their sole and absolute discretion, to continue the business of the
AIMCO Operating Partnership and to the appointment, effective as of the date of
withdrawal, of a successor AIMCO GP; (iii) an election to dissolve the AIMCO
Operating Partnership made by the AIMCO GP in its sole and absolute discretion,
with or without the consent of the OP Unitholders; (iv) entry of a decree of
judicial dissolution of the AIMCO Operating Partnership pursuant to the
provisions of the Delaware LP Act; (v) the occurrence of a Terminating Capital
Transaction; or (vi) the Redemption (or acquisition by AIMCO, the AIMCO GP
and/or the Special Limited Partner) of all Common OP Units other than Common OP
Units held by the AIMCO GP or the Special Limited Partner.
"Majority in Interest" means OP Unitholders (other than (i) the Special
Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more of whose
equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any REIT as
to which the AIMCO GP is a "qualified REIT subsidiary" (within the meaning of
Code Section 856(i)(2))) holding more than fifty percent (50%) of the
outstanding Common OP Units held by all OP Unitholders (other than (i) the
Special Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more
of whose equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any
REIT as to which the AIMCO GP is a "qualified REIT subsidiary" (within the
meaning of Code Section 856(i)(2))).
"Managed Properties" means the apartment properties managed by AIMCO for
third party owners and affiliates.
"Management Subsidiaries" means PAMS LP and the other subsidiaries of the
Company that manage the Managed Properties.
"March Hedge" means the interest rate hedging agreement entered into in
March 1997 between the Company and an investment banking company in anticipation
of certain indebtedness.
"Measurement Period" means the January 1, 1998 to the Valuation Date.
"MGCL" means the Maryland General Corporation Law.
"Minimum Return" means a 30% cumulative Total Return over three years.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NHP" means NHP Incorporated.
"NHP Properties" means the 534 multifamily apartment properties containing
87,689 apartment units, a captive insurance subsidiary and certain related
assets.
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"NHP Real Estate Companies" means a group of companies previously owned by
NHP that hold interests in the NHP Properties.
"NHP Real Estate Reorganization" means the reorganization of the Company's
interests in the NHP Real Estate Companies.
"Non-U.S. Holder" means any person other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state thereof or
the District of Columbia, (iii) an estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source or (iv) a
trust if a United States court is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust.
"NYSE" means the New York Stock Exchange.
"OP Merger" means the merger of the Ambassador Operating Partnership with
and into the AIMCO Operating Partnership.
"OP Unitholder" means a holder of OP Units.
"OP Units" means Preferred OP Units and the Common OP Units.
"Owned Properties" means the apartment properties owned or controlled by
AIMCO.
"Ownership Limit" means the limit by the AIMCO Charter of direct or
constructive ownership of shares of Class A Common Stock representing more than
8.7% (or 15% in the case of certain pension trusts, registered investment
companies and Mr. Considine) of the combined total of outstanding shares of
AIMCO's Class A Common Stock or Class B Common Stock by any person.
"Partner" means the AIMCO GP or an OP Unitholder, and "Partners" means the
AIMCO GP and the OP Unitholders.
"Partnership Tax Items" means partnership tax items including partnership
income, gains, losses, deductions, and credits.
"Preferred OP Units" means Partnership Preferred Units of the AIMCO
Operating Partnership.
"Preferred Share Investor" means the institutional investor to whom AIMCO
issued 750,000 shares of Class B Preferred Stock in a private transaction.
"Preferred Share Purchase Agreement" means the agreement pursuant to which
AIMCO issued the Class B Preferred Stock.
"Preferred Stock" means the preferred stock of AIMCO, par value $.01 per
share.
"Prospectus" means this prospectus, as it may be further supplemented or
amended from time to time.
"Prospectus Supplement" means a prospectus supplement accompanying the
Prospectus.
"PTP Regulations" means the Treasury Regulations generally effective for
taxable years beginning after December 31, 1995.
"publicly traded partnership" means a partnership classified as a publicly
traded partnership for federal income tax purposes.
"qualifying income" means, in general, income which includes interest,
dividends, real property rents (as defined by Section 856 of the Code) and gain
from the sale or disposition of real property.
"Redemption" means to redeem all or a portion of the Common OP Units held
by a Common OP Unitholder and certain Assignees in exchange for a cash amount
based on the value of shares of Class A Common Stock.
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"Registration Statement" means the registration statement on Form S-4 of
which the Prospectus forms a part, together with all amendments and exhibits,
filed by AIMCO and the AIMCO Operating Partnership with the Commission.
"REIT" means a real estate investment trust.
"REIT Requirements" means the requirements for qualifying a REIT under the
Code.
"Schedule K-1" means the report which the AIMCO Operating Partnership
furnishes to each OP Unitholder that sets forth his allocable share of income,
gains, losses and deductions.
"Section 751 Assets" has the meaning given to such term in the Code.
"Section 8" means Section 8 of the United States Housing Act of 1937.
"Securities" means the Preferred Stock, the Class A Common Stock and the OP
Units.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders" means persons who may receive from AIMCO or the AIMCO
Operating Partnership Securities covered by the Registration Statement in
acquisitions and who may be entitled to offer such Securities under
circumstances requiring the use of a Prospectus.
"September Hedge" means the interest rate agreement entered into in
September 1997 between the Company and an investment banking company.
"Special Dividend" means the special dividend of $50 million in the
aggregate of which holders of Class E Preferred Stock will be entitled to
receive a pro rata share.
"Special Limited Partner" means AIMCO-LP, Inc., a limited partner in the
AIMCO Operating Partnership.
"Subsidiary Partnerships" means other limited partnerships and limited
liability companies in which AIMCO has a controlling interest.
"Tax Matters Partner" means AIMCO GP, which is authorized, but not
required, to take certain actions on behalf of the AIMCO Operating Partnership
with respect to tax matters.
"Tender Offer English Partnerships" means the 25 English Partnerships that
received English Tender Offers.
"Terminating Capital Transaction" means the sale or other disposition of
all or substantially all of the assets of the AIMCO Operating Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the AIMCO Operating
Partnership.
"TMT" means tentative minimum tax.
"TNRCC" means the Texas Natural Resources Conservation Commission.
"Total Return" means, for any security and for any period, the cumulative
total return for such security over such period, as measured by (i) the sum of
(a) the cumulative amount of dividends paid in respect of such security for such
period (assuming that all cash dividends are reinvested in such security as of
the payment date for such dividend based on the security price on the dividend
payment date), and (b) an amount equal to (x) the security price at the end of
such period, minus (y) the security price at the beginning of such period,
divided by (ii) the security price at the beginning of the measurement period;
provided, however, that if the foregoing calculation results in a negative
number, the "Total Return" shall be equal to zero.
"Treasury Regulations" means the Treasury regulations promulgated under the
Code.
"UBTI" means unrelated business taxable income.
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"UBTI Percentage" means the gross income derived by AIMCO from an unrelated
trade or business (determined as if AIMCO were a pension trust) divided by the
gross income of AIMCO for the year in which the dividends are paid.
"Unconsolidated Partnership" means a limited partnership in which the AIMCO
Operating Partnership will hold a 99% limited partnership interest and certain
directors and officers of AIMCO will, directly or indirectly, hold a 1% general
partner interest.
"Unconsolidated Subsidiaries" means the unconsolidated subsidiaries of
AIMCO, which from time to time, the Company has organized in order to satisfy
certain requirements for AIMCO's continued qualification as a REIT.
"Underlying Partnership" means another partnership other than the AIMCO
Operating Partnership.
"USRPI" means a United States Real Property Interest.
"USRPI Capital Gains" means a distribution made by AIMCO to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of USRPIs such as
the properties beneficially owned by AIMCO.
"Valuation Date" means the date that is the earlier of (i) January 1, 2001,
or (ii) the date on which a change of control occurs.
"voting stock" means the stock entitled to be cast generally in the
election of directors.
"Washington Mortgage" means Washington Mortgage Financial Group, Ltd.
"WMF Credit Facility" means the $50 million secured revolving credit
facility entered into in February 1998 between the Company and Washington
Mortgage.
"Year-End Test Date" means December 31 of each of the years 1994 through
1998.
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APPENDIX B-1
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- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P.
OF
AIMCO PROPERTIES, L.P.
a Delaware limited partnership
---------------------
dated as of July 29, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 208
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE 1 DEFINED TERMS.................................... B-1
ARTICLE 2 ORGANIZATIONAL MATTERS........................... B-14
Section 2.1 Organization.............................. B-14
Section 2.2 Name...................................... B-14
Section 2.3 Registered Office and Agent; Principal
Office................................................. B-14
Section 2.4 Power of Attorney......................... B-14
Section 2.5 Term...................................... B-15
ARTICLE 3 PURPOSE.......................................... B-15
Section 3.1 Purpose and Business...................... B-15
Section 3.2 Powers.................................... B-16
Section 3.3 Partnership Only for Purposes Specified... B-16
Section 3.4 Representations and Warranties by the
Parties................................................ B-16
ARTICLE 4 CAPITAL CONTRIBUTIONS............................ B-18
Section 4.1 Capital Contributions of the Partners..... B-18
Section 4.2 Issuances of Additional Partnership
Interests.............................................. B-18
Section 4.3 Additional Funds.......................... B-19
Section 4.4 Stock Option Plans........................ B-20
Section 4.5 No Interest; No Return.................... B-21
Section 4.6 Conversion of Junior Shares............... B-21
ARTICLE 5 DISTRIBUTIONS.................................... B-21
Section 5.1 Requirement and Characterization of
Distributions.......................................... B-21
Section 5.2 Distributions in Kind..................... B-22
Section 5.3 Amounts Withheld.......................... B-22
Section 5.4 Distributions Upon Liquidation............ B-22
Section 5.5 Restricted Distributions.................. B-22
ARTICLE 6 ALLOCATIONS...................................... B-22
Section 6.1 Timing and Amount of Allocations of Net
Income and Net Loss.................................... B-22
Section 6.2 General Allocations....................... B-22
Section 6.3 Additional Allocation Provisions.......... B-22
Section 6.4 Tax Allocations........................... B-24
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS............ B-25
Section 7.1 Management................................ B-25
Section 7.2 Certificate of Limited Partnership........ B-27
Section 7.3 Restrictions on General Partner's
Authority.............................................. B-27
Section 7.4 Reimbursement of the General Partner...... B-29
Section 7.5 Outside Activities of the Previous General
Partner and the General Partner........................ B-29
Section 7.6 Contracts with Affiliates................. B-30
Section 7.7 Indemnification........................... B-30
Section 7.8 Liability of the General Partner.......... B-32
Section 7.9 Other Matters Concerning the General
Partner................................................ B-33
Section 7.10 Title to Partnership Assets................ B-33
Section 7.11 Reliance by Third Parties.................. B-33
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS....... B-34
Section 8.1 Limitation of Liability................... B-34
Section 8.2 Management of Business.................... B-34
Section 8.3 Outside Activities of Limited Partners.... B-34
Section 8.4 Return of Capital......................... B-34
Section 8.5 Rights of Limited Partners Relating to the
Partnership............................................ B-35
</TABLE>
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<TABLE>
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<S> <C>
Section 8.6 Redemption Rights of Qualifying Parties... B-35
Section 8.7 Partnership Right to Call Limited Partner
Interests.............................................. B-39
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS........... B-39
Section 9.1 Records and Accounting.................... B-39
Section 9.2 Fiscal Year............................... B-39
Section 9.3 Reports................................... B-39
ARTICLE 10 TAX MATTERS..................................... B-40
Section 10.1 Preparation of Tax Returns................. B-40
Section 10.2 Tax Elections.............................. B-40
Section 10.3 Tax Matters Partner........................ B-40
Section 10.4 Withholding................................ B-41
ARTICLE 11 TRANSFERS AND WITHDRAWALS....................... B-42
Section 11.1 Transfer................................... B-42
Section 11.2 Transfer of General Partner's Partnership
Interest............................................... B-42
Section 11.3 Limited Partners' Rights to Transfer....... B-43
Section 11.4 Substituted Limited Partners............... B-44
Section 11.5 Assignees.................................. B-45
Section 11.6 General Provisions......................... B-45
ARTICLE 12 ADMISSION OF PARTNERS........................... B-47
Section 12.1 Admission of Successor General Partner..... B-47
Section 12.2 Admission of Additional Limited Partners... B-47
Section 12.3 Amendment of Agreement and Certificate of
Limited Partnership.................................... B-47
Section 12.4 Admission of Initial Limited Partners...... B-47
Section 12.5 Limit on Number of Partners................ B-48
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION........ B-48
Section 13.1 Dissolution................................ B-48
Section 13.2 Winding Up................................. B-48
Section 13.3 Deemed Distribution and Recontribution..... B-49
Section 13.4 Rights of Limited Partners................. B-50
Section 13.5 Notice of Dissolution...................... B-50
Section 13.6 Cancellation of Certificate of Limited
Partnership............................................ B-50
Section 13.7 Reasonable Time for Winding-Up............. B-50
ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS;
AMENDMENTS; MEETINGS...................................... B-50
Section 14.1 Procedures for Actions and Consents of
Partners............................................... B-50
Section 14.2 Amendments................................. B-50
Section 14.3 Meetings of the Partners................... B-50
ARTICLE 15 GENERAL PROVISIONS.............................. B-51
Section 15.1 Addresses and Notice....................... B-51
Section 15.2 Titles and Captions........................ B-51
Section 15.3 Pronouns and Plurals....................... B-51
Section 15.4 Further Action............................. B-51
Section 15.5 Binding Effect............................. B-51
Section 15.6 Waiver..................................... B-51
Section 15.7 Counterparts............................... B-52
Section 15.8 Applicable Law............................. B-52
Section 15.9 Entire Agreement........................... B-52
Section 15.10 Invalidity of Provisions................... B-52
Section 15.11 Limitation to Preserve REIT Status......... B-52
</TABLE>
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<TABLE>
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<S> <C>
Section 15.12 No Partition............................... B-53
Section 15.13 No Third-Party Rights Created Hereby....... B-53
EXHIBIT A PARTNERS AND PARTNERSHIP UNITS
EXHIBIT B EXAMPLES REGARDING ADJUSTMENT FACTOR
EXHIBIT C LIST OF DESIGNATED PARTIES
EXHIBIT D SUB-ALLOCATION OF GROSS FAIR MARKET VALUES
EXHIBIT E NOTICE OF REDEMPTION
EXHIBIT F FORM OF UNIT CERTIFICATE
</TABLE>
NONE OF THE ABOVE EXHIBITS ARE INCLUDED IN THIS PROSPECTUS.
THEY ARE AVAILABLE UPON REQUEST OF THE COMPANY.
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SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO
PROPERTIES, L.P., dated as of July 29, 1994, is entered into by and among
Apartment Investment and Management Company, a Maryland corporation (the
"Previous General Partner"), AIMCO-GP, Inc., a Delaware corporation (the
"General Partner"), AIMCO-LP, Inc., a Delaware corporation (the "Special Limited
Partner"), and the other Limited Partners (as defined below).
WHEREAS, the General Partner has submitted, and the Limited Partners have
approved, an amendment and restatement of the Agreement of Limited Partnership
of AIMCO Properties, L.P. on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Section 7.7 hereof.
"Additional Funds" has the meaning set forth in Section 4.3.A hereof.
"Additional Limited Partner" means a Person who is admitted to the
Partnership as a Limited Partner pursuant to Section 4.2 and Section 12.2 hereof
and who is shown as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(i) decrease such deficit by any amounts that such Partner is
obligated to restore pursuant to this Agreement or by operation of law upon
liquidation of such Partner's Partnership Interest or is deemed to be
obligated to restore pursuant to the penultimate sentence of each of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) increase such deficit by the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account Deficit" is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that in the event that:
(i) the Previous General Partner (a) declares or pays a dividend on
its outstanding REIT Shares in REIT Shares or makes a distribution to all
holders of its outstanding REIT Shares in REIT Shares, (b) splits or
subdivides its outstanding REIT Shares or (c) effects a reverse stock split
or otherwise combines its outstanding REIT Shares into a smaller number of
REIT Shares, the Adjustment Factor shall be adjusted by multiplying the
Adjustment Factor previously in effect by a fraction, (i) the numerator of
which shall be the number of REIT Shares issued and outstanding on the
record date for such dividend, distribution, split, subdivision, reverse
split or combination (assuming for such purposes
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that such dividend, distribution, split, subdivision, reverse split or
combination has occurred as of such time) and (ii) the denominator of which
shall be the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, split, subdivision, reverse split or combination;
(ii) the Previous General Partner distributes any rights, options or
warrants to all holders of its REIT Shares to subscribe for or to purchase
or to otherwise acquire REIT Shares (or other securities or rights
convertible into, exchangeable for or exercisable for REIT Shares) at a
price per share less than the Value of a REIT Share on the record date for
such distribution (each a "Distributed Right"), then the Adjustment Factor
shall be adjusted by multiplying the Adjustment Factor previously in effect
by a fraction (a) the numerator of which shall be the number of REIT Shares
issued and outstanding on the record date plus the maximum number of REIT
Shares purchasable under such Distributed Rights and (b) the denominator of
which shall be the number of REIT Shares issued and outstanding on the
record date plus a fraction (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights and (2)
the denominator of which is the Value of a REIT Share as of the record
date; provided, however, that, if any such Distributed Rights expire or
become no longer exercisable, then the Adjustment Factor shall be adjusted,
effective retroactive to the date of distribution of the Distributed
Rights, to reflect a reduced maximum number of REIT Shares or any change in
the minimum purchase price for the purposes of the above fraction; and
(iii) the Previous General Partner shall, by dividend or otherwise,
distribute to all holders of its REIT Shares evidences of its indebtedness
or assets (including securities, but excluding any dividend or distribution
referred to in subsection (i) above), which evidences of indebtedness or
assets relate to assets not received by the Previous General Partner, the
General Partner and/or the Special Limited Partner pursuant to a pro rata
distribution by the Partnership, then the Adjustment Factor shall be
adjusted to equal the amount determined by multiplying the Adjustment
Factor in effect immediately prior to the close of business on the date
fixed for determination of shareholders entitled to receive such
distribution by a fraction (i) the numerator shall be such Value of a REIT
Share on the date fixed for such determination and (ii) the denominator
shall be the Value of a REIT Share on the dates fixed for such
determination less the then fair market value (as determined by the General
Partner, whose determination shall be conclusive) of the portion of the
evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event, provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment to the
Adjustment Factor applicable to the Partnership Common Units held by such
Limited Partner, and, thereafter, such adjustment will not be effective as to
such Partnership Common Units. For illustrative purposes, examples of
adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., as it may be amended, supplemented or
restated from time to time.
"Applicable Percentage" has the meaning set forth in Section 8.6.B hereof.
"Appraisal" means, with respect to any assets, the written opinion of an
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith. Such opinion may
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be in the form of an opinion by such independent third party that the value for
such property or asset as set by the General Partner is fair, from a financial
point of view, to the Partnership.
"Assignee" means a Person to whom one or more Partnership Common Units have
been Transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(1) the Partnership's Net Income or Net Loss (as the case may be)
for such period,
(2) Depreciation and all other noncash charges to the extent
deducted in determining Net Income or Net Loss for such period,
(3) the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(6) below (including, without limitation,
reductions resulting because the General Partner determines such amounts
are no longer necessary),
(4) the excess, if any, of the net cash proceeds from the sale,
exchange, disposition, financing or refinancing of Partnership property
for such period over the gain (or loss, as the case may be) recognized
from such sale, exchange, disposition, financing or refinancing during
such period (excluding Terminating Capital Transactions), and
(5) all other cash received (including amounts previously accrued
as Net Income and amounts of deferred income) or any net amounts
borrowed by the Partnership for such period that was not included in
determining Net Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(1) all principal debt payments made during such period by the
Partnership,
(2) capital expenditures made by the Partnership during such
period,
(3) investments in any entity (including loans made thereto) to the
extent that such investments are not otherwise described in clause
(ii)(1) or clause (ii)(2) above,
(4) all other expenditures and payments not deducted in determining
Net Income or Net Loss for such period (including amounts paid in
respect of expenses previously accrued),
(5) any amount included in determining Net Income or Net Loss for
such period that was not received by the Partnership during such period,
(6) the amount of any increase in reserves (including, without
limitation, working capital reserves) established during such period
that the General Partner determines are necessary or appropriate in its
sole and absolute discretion, and
(7) any amount distributed or paid in redemption of any Limited
Partner Interest or Partnership Units including, without limitation, any
Cash Amount paid.
Notwithstanding the foregoing, Available Cash shall not include (a) any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Partnership or (b) any Capital Contributions,
whenever received.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Denver, Colorado, Los Angeles, California or New York,
New York are authorized or required by law to close.
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"Capital Account" means, with respect to any Partner, the Capital Account
maintained by the General Partner for such Partner on the Partnership's books
and records in accordance with the following provisions:
(a) To each Partner's Capital Account, there shall be added such
Partner's Capital Contributions, such Partner's distributive share of Net
Income and any items in the nature of income or gain that are specially
allocated pursuant to Section 6.3 hereof, and the principal amount of any
Partnership liabilities assumed by such Partner or that are secured by any
property distributed to such Partner.
(b) From each Partner's Capital Account, there shall be subtracted the
amount of cash and the Gross Asset Value of any property distributed to
such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Net Losses and any items in the nature of expenses or
losses that are specially allocated pursuant to Section 6.3 hereof, and the
principal amount of any liabilities of such Partner assumed by the
Partnership or that are secured by any property contributed by such Partner
to the Partnership.
(c) In the event any interest in the Partnership is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed
to the Capital Account of the transferor to the extent that it relates to
the Transferred interest.
(d) In determining the principal amount of any liability for purposes
of subsections (a) and (b) hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
(e) The provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations Sections
1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner
consistent with such Regulations. If the General Partner shall determine
that it is prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the General Partner
may make such modification provided that such modification will not have a
material effect on the amounts distributable to any Partner without such
Partner's Consent. The General Partner also shall (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and the amount of Partnership capital reflected on
the Partnership's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any
appropriate modifications in the event that unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any Contributed Property that such
Partner contributes to the Partnership pursuant to Section 4.1, 4.2 or 4.3
hereof or is deemed to contribute pursuant to Section 4.4 hereof.
"Cash Amount" means the lesser of (a) an amount of cash equal to the
product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount
determined as of the applicable Valuation Date or (b) in the case of a
Declination followed by a Public Offering Funding, the Public Offering Funding
Amount.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Charter" means the Articles of Amendment and Restatement of the Previous
General Partner filed with the Maryland State Department of Assessments and
Taxation on July 19, 1994, as amended, supplemented or restated from time to
time.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time or any successor statute thereto, as interpreted by the
applicable Regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
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"Company Employee" has the meaning ascribed thereto in the Previous General
Partner's 1994 Stock Option Plan.
"Consent" means the consent to, approval of, or vote in favor of a proposed
action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a Majority in
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and, except as
otherwise provided in this Agreement, may be given or withheld by a Majority in
Interest of the Limited Partners, in their reasonable discretion.
"Contributed Property" means each Property or other asset, in such form as
may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (or deemed contributed to the Partnership on
termination and reconstitution thereof pursuant to Code Section 708).
"Controlled Entity" means, as to any Limited Partner, (a) any corporation
more than fifty percent (50%) of the outstanding voting stock of which is owned
by such Limited Partner or such Limited Partner's Family Members, (b) any trust,
whether or not revocable, of which such Limited Partner or such Limited
Partner's Family Members are the sole beneficiaries, (c) any partnership of
which such Limited Partner is the managing partner and in which such Limited
Partner or such Limited Partner's Family Members hold partnership interests
representing at least twenty-five percent (25%) of such partnership's capital
and profits and (d) any limited liability company of which such Limited Partner
is the manager and in which such Limited Partner or such Limited Partner's
Family Members hold membership interests representing at least twenty-five
percent (25%) of such limited liability company's capital and profits.
"Controlling Person" means any Person, whatever his or her title, who
performs executive or senior management functions for the General Partner or its
Affiliates similar to those of directors, executive management and senior
management, or any Person who either holds a two percent (2%) or more equity
interest in the General Partner or its Affiliates, or has the power to direct or
cause the direction of the General Partner or its Affiliates, whether through
the ownership of voting securities, by contract or otherwise, or, in the absence
of a specific role or title, any Person having the power to direct or cause the
direction of the management-level employees and policies of the General Partner
or its Affiliates. It is not intended that every Person who carries a title such
as vice president, senior vice president, secretary or treasurer be included in
the definition of "Controlling Person."
"Cut-Off Date" means the fifth (5th) Business Day after the General
Partner's receipt of a Notice of Redemption.
"Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
that, in accordance with generally accepted accounting principles, should be
capitalized.
"Declination" has the meaning set forth in Section 8.6.D hereof.
"Depreciation" means, for each Fiscal Year or other applicable period, an
amount equal to the federal income tax depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
period, Depreciation shall be in an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction
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for such year or period is zero, Depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
"Designated Parties" means the Persons designated on Exhibit C attached
hereto. The General Partner may, in its sole and absolute discretion, amend
Exhibit C to add Persons to be designated as Designated Parties.
"Distributed Right" has the meaning set forth in the definition of
"Adjustment Factor."
"Effective Date" means July 29, 1994.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Family Members" means, as to a Person that is an individual, such Person's
spouse, ancestors, descendants (whether by blood or by adoption), brothers,
sisters and inter vivos or testamentary trusts of which only such Person and his
spouse, ancestors, descendants (whether by blood or by adoption), brothers and
sisters are beneficiaries.
"Fiscal Year" means the fiscal year of the Partnership, which shall be the
calendar year.
"Funding Debt" means any Debt incurred by or on behalf of the Previous
General Partner, the General Partner or the Special Limited Partner for the
purpose of providing funds to the Partnership.
"General Partner" means AIMCO-GP, Inc., a Delaware corporation, and its
successors and assigns, as the general partner of the Partnership in their
capacities as general partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by the
General Partner, which Partnership Interest is an interest as a general partner
under the Act. A General Partner Interest may be expressed as a number of
Partnership Common Units, Partnership Preferred Units or any other Partnership
Units.
"General Partner Loan" has the meaning set forth in Section 4.3.D hereof.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market values of such
assets as determined by the General Partner and agreed to by the
contributing Partner. In any case in which the General Partner and the
contributing Partner are unable to agree as to the gross fair market value
of any contributed asset or assets, such gross fair market value shall be
determined by Appraisal. The sub-allocation of gross fair market value is
indicated on Exhibit D attached hereto, as amended.
(b) The Gross Asset Values of all Partnership assets immediately prior
to the occurrence of any event described in clause (i), clause (ii), clause
(iii), clause (iv) or clause (v) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the General Partner
using such reasonable method of valuation as it may adopt, as of the
following times:
(i) the acquisition of an additional interest in the Partnership
(other than in connection with the execution of this Agreement but
including, without limitation, acquisitions pursuant to Section 4.2
hereof or contributions or deemed contributions by the General Partner
pursuant to Section 4.2 hereof) by a new or existing Partner in exchange
for more than a de minimis Capital Contribution, if the General Partner
reasonably determines that such adjustment is necessary or appropriate
to reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner of more than
a de minimis amount of Partnership property as consideration for an
interest in the Partnership, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;
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(iii) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General Partner pursuant to
Section 12.1 hereof; and
(v) at such other times as the General Partner shall reasonably
determine necessary or advisable in order to comply with Regulations
Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner
provided that, if the distributee is the General Partner or if the
distributee and the General Partner cannot agree on such a determination,
such gross fair market value shall be determined by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted pursuant
to this subsection (d) to the extent that the General Partner reasonably
determines that an adjustment pursuant to subsection (b) above is necessary
or appropriate in connection with a transaction that would otherwise result
in an adjustment pursuant to this subsection (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or
subsection (d) above, such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Losses.
"Holder" means either (a) a Partner or (b) an Assignee, owning a
Partnership Unit, that is treated as a member of the Partnership for federal
income tax purposes.
"Incapacity" or "Incapacitated" means, (i) as to any Partner who is an
individual, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her person
or his or her estate; (ii) as to any Partner that is a corporation or limited
liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; (iii) as to
any Partner that is a partnership, the dissolution and commencement of winding
up of the partnership; (iv) as to any Partner that is an estate, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust that is a Partner, the termination
of the trust (but not the substitution of a new trustee); or (vi) as to any
Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Partner under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt
or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment, or (h) an appointment referred to in clause (g)
above is not vacated within ninety (90) days after the expiration of any such
stay.
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"Indemnitee" means (i) any Person made a party to a proceeding by reason of
its status as (A) the Previous General Partner or the General Partner or (B) a
director of the Previous General Partner or the General Partner or an officer or
employee of the Partnership or the Previous General Partner or the General
Partner and (ii) such other Persons (including Affiliates of the General Partner
or the Partnership) as the General Partner may designate from time to time
(whether before or after the event giving rise to potential liability), in its
sole and absolute discretion.
"Independent Director" has the meaning ascribed thereto in the Previous
General Partner's 1994 Stock Option Plan.
"Interest" means interest, original issue discount and other similar
payments or amounts paid by the Partnership for the use or forbearance of money.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Junior Share" means a share of the Previous General Partner's Class B
Common Stock, par value $.01 per share.
"Limited Partner" means the Special Limited Partner and any Person named as
a Limited Partner in Exhibit A attached hereto, as such Exhibit A may be amended
from time to time, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Limited Partners and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partner Interest may be expressed as
a number of Partnership Common Units, Partnership Preferred Units or other
Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1 hereof.
"Liquidator" has the meaning set forth in Section 13.2.A hereof.
"Majority in Interest of the Limited Partners" means Limited Partners
(other than (i) the Special Limited Partner and (ii) any Limited Partner fifty
percent (50%) or more of whose equity is owned, directly or indirectly, by the
(a) General Partner or (b) any REIT as to which the General Partner is a
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)))
holding more than fifty percent (50%) of the outstanding Partnership Common
Units held by all Limited Partners (other than (i) the Special Limited Partner
and (ii) any Limited Partner fifty percent (50%) or more of whose equity is
owned, directly or indirectly, by (a) the General Partner or (b) any REIT as to
which the General Partner is a "qualified REIT subsidiary" (within the meaning
of Code Section 856(i)(2))).
"Net Income" or "Net Loss" means, for each Fiscal Year of the Partnership,
an amount equal to the Partnership's taxable income or loss for such year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Income (or Net
Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be
added to (or subtracted from, as the case may be) such taxable income (or
loss);
(b) Any expenditure of the Partnership described in Code Section
705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Net Income (or Net Loss) pursuant to this definition
of "Net Income" or "Net Loss," shall be subtracted from (or added to, as
the case may be) such taxable income (or loss);
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(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subsection (b) or subsection (c) of the definition of
"Gross Asset Value," the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost recovery
deductions that would otherwise be taken into account in computing such
taxable income or loss, there shall be taken into account Depreciation for
such Fiscal Year;
(f) To the extent that an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Partner's interest in the
Partnership, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Net Income
or Net Loss; and
(g) Notwithstanding any other provision of this definition of "Net
Income" or "Net Loss," any item that is specially allocated pursuant to
Section 6.3 hereof shall not be taken into account in computing Net Income
or Net Loss. The amounts of the items of Partnership income, gain, loss or
deduction available to be specially allocated pursuant to Section 6.3
hereof shall be determined by applying rules analogous to those set forth
in this definition of "Net Income" or "Net Loss."
"New Securities" means (i) any rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase REIT
Shares or Preferred Shares, excluding Junior Shares, Preferred Shares and grants
under the Previous General Partner's Stock Option Plans, or (ii) any Debt issued
by the Previous General Partner that provides any of the rights described in
clause (i).
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption substantially in the
form of Exhibit E attached to this Agreement.
"Optionee" means a Company Employee, Partnership Employee or Independent
Director to whom a stock option is granted under the Previous General Partner's
Stock Option Plans.
"Original Limited Partners" means the Persons listed as the Limited
Partners on Exhibit A originally attached to this Agreement, without regard to
any amendment thereto, and does not include any Assignee or other transferee,
including, without limitation, any Substituted Limited Partner succeeding to all
or any part of the Partnership Interest of any such Person.
"Ownership Limit" means the applicable restriction on ownership of shares
of the Previous General Partner imposed under the Charter.
"Partner" means the General Partner or a Limited Partner, and "Partners'
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
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"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section
1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Common Unit" means a fractional share of the Partnership
Interests of all Partners issued pursuant to Sections 4.1 and 4.2 hereof, but
does not include any Partnership Preferred Unit or any other Partnership Unit
specified in a Partnership Unit Designation as being other than a Partnership
Common Unit; provided, however, that the General Partner Interest and the
Limited Partner Interests shall have the differences in rights and privileges as
specified in this Agreement. The ownership of Partnership Common Units may (but
need not, in the sole and absolute discretion of the General Partner) be
evidenced by the form of certificate for Partnership Common Units attached
hereto as Exhibit F.
"Partnership Employee" has the meaning ascribed thereto in the Previous
General Partner's 1994 Stock Option Plan.
"Partnership Interest" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
may be expressed as a number of Partnership Common Units, Partnership Preferred
Units or other Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Fiscal Year shall be
determined in accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Preferred Unit" means a fractional share of the Partnership
Interests that the General Partner has authorized pursuant to Section 4.2 hereof
that has distribution rights, or rights upon liquidation, winding up and
dissolution, that are superior or prior to the Partnership Common Units.
"Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall generally be the same as the record date established by
the Previous General Partner for a distribution to its shareholders of some or
all of its portion of such distribution.
"Partnership Subsidiary" has the meaning ascribed thereto in the Apartment
Investment and Management Company 1997 Stock Award and Incentive Plan.
"Partnership Unit" shall mean a Partnership Common Unit, a Partnership
Preferred Unit or any other fractional share of the Partnership Interests that
the General Partner has authorized pursuant to Section 4.2 hereof.
"Partnership Unit Designation" shall have the meaning set forth in Section
4.2 hereof.
"Percentage Interest" means, as to each Partner, its interest in the
Partnership Units as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding.
"Permitted Transfer" has the meaning set forth in Section 11.3.A hereof.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Pledge" has the meaning set forth in Section 11.3.A hereof.
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"Preferred Share" means a share of capital stock of the Previous General
Partner now or hereafter authorized or reclassified that has dividend rights, or
rights upon liquidation, winding up and dissolution, that are superior or prior
to the REIT Shares.
"Previous General Partner" means Apartment Investment and Management
Company, a Maryland corporation.
"Previous General Partner's 1994 Stock Option Plan" means the 1994 Stock
Option Plan of Apartment Investment and Management Company and Affiliates.
"Previous General Partner's Stock Option Plans" means the Previous General
Partner's 1994 Stock Option Plan, the Apartment Investment and Management
Company 1996 Stock Award and Incentive Plan, the Amended and Restated Apartment
Investment and Management Company Non-Qualified Employee Stock Option Plan, the
Apartment Investment and Management Company 1997 Stock Award and Incentive Plan
and any other stock option plan hereafter adopted by the Previous General
Partner.
"Primary Offering Notice" has the meaning set forth in Section 8.6.F(4)
hereof.
"Properties" means any assets and property of the Partnership such as, but
not limited to, interests in real property and personal property, including,
without limitation, fee interests, interests in ground leases, interests in
limited liability companies, joint ventures or partnerships, interests in
mortgages, and Debt instruments as the Partnership may hold from time to time.
"Public Offering Funding" has the meaning set forth in Section 8.6.D(2)
hereof.
"Public Offering Funding Amount" means the dollar amount equal to (i) the
product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts
and commissions in such Public Offering Funding.
"Qualified Transferee" means an "accredited investor" as defined in Rule
501 promulgated under the Securities Act.
"Qualifying Party" means (a) an Original Limited Partner, (b) an Additional
Limited Partner, (c) a Designated Party that is either a Substituted Limited
Partner or an Assignee, (d) a Family Member, or a lending institution as the
pledgee of a Pledge, who is the transferee in a Permitted Transfer or (e) with
respect to any Notice of Redemption delivered to the General Partner within the
time period set forth in Section 11.3.A(4) hereof, a Substituted Limited Partner
succeeding to all or part of the Limited Partner Interest of (i) an Original
Limited Partner, (ii) an Additional Limited Partner, (iii) a Designated Party
that is either a Substituted Limited Partner or an Assignee or (iv) a Family
Member, or a lending institution who is the pledgee of a Pledge, who is the
transferee in a Permitted Transfer.
"Redeemable Units" means those Partnership Common Units issued to the
Original Limited Partners as of the Effective Date together with such additional
Partnership Common Units that, after the Effective Date, may be issued to
Additional Limited Partners pursuant to Section 4.2 hereof.
"Redemption" has the meaning set forth in Section 8.6.A hereof.
"Registrable Shares" has the meaning set forth in Section 8.6.D(2) hereof.
"Regulations" means the applicable income tax regulations under the Code,
whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 6.3.B(viii)
hereof.
"REIT" means a real estate investment trust qualifying under Code Section
856.
"REIT Partner" means (a) a Partner that is, or has made an election to
qualify as, a REIT, (b) any "qualified REIT subsidiary" (within the meaning of
Code Section 856(i)(2)) of any Partner that is, or has made an election to
qualify as, a REIT and (c) any Partner, including, without limitation, the
General Partner
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and the Special Limited Partner, that is a "qualified REIT subsidiary" (within
the meaning of Code Section 856(i)(2)) of a REIT.
"REIT Payment" has the meaning set forth in Section 15.11 hereof.
"REIT Requirements" has the meaning set forth in Section 5.1.A hereof.
"REIT Share" means a share of the Previous General Partner's Class A Common
Stock, par value $.01 per share. Where relevant in this Agreement, "REIT Shares"
includes shares of the Previous General Partner's Class A Common Stock, par
value $.01 per share, issued upon conversion of Preferred Shares or Junior
Shares.
"REIT Shares Amount" means a number of REIT Shares equal to the product of
(a) the number of Tendered Units and (b) the Adjustment Factor; provided,
however, that, in the event that the Previous General Partner issues to all
holders of REIT Shares as of a certain record date rights, options, warrants or
convertible or exchangeable securities entitling the Previous General Partner's
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), with the record date for such Rights
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the Previous
General Partner in good faith.
"Related Party" means, with respect to any Person, any other Person whose
ownership of shares of the Previous General Partner's capital stock would be
attributed to the first such Person under Code Section 544 (as modified by Code
Section 856(h)(1)(B)).
"Rights" has the meaning set forth in the definition of "REIT Shares
Amount."
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Single Funding Notice" has the meaning set forth in Section 8.6.D(3)
hereof.
"Special Limited Partner" means AIMCO-LP, Inc., a Delaware corporation.
"Specified Redemption Date" means the later of (a) the tenth (10th)
Business Day after the receipt by the General Partner of a Notice of Redemption
or (b) in the case of a Declination followed by a Public Offering Funding, the
Business Day next following the date of the closing of the Public Offering
Funding; provided, however, that no Specified Redemption Date shall occur during
the first Twelve-Month Period; provided, further, that the Specified Redemption
Date, as well as the closing of a Redemption, or an acquisition of Tendered
Units by the Previous General Partner pursuant to Section 8.6.B hereof, on any
Specified Redemption Date, may be deferred, in the General Partner's sole and
absolute discretion, for such time (but in any event not more than one hundred
fifty (150) days in the aggregate) as may reasonably be required to effect, as
applicable, (i) a Public Offering Funding or other necessary funding
arrangements, (ii) compliance with the Securities Act or other law (including,
but not limited to, (a) state "blue sky" or other securities laws and (b) the
expiration or termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii)
satisfaction or waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person; provided, however, that, with respect to the
Partnership, "Subsidiary" means solely a partnership or limited liability
company (taxed, for federal income tax purposes, as a partnership and not as an
association or publicly traded partnership taxable as a corporation) of which
the Partnership is a member unless the General Partner has received an
unqualified opinion from independent counsel of recognized standing, or a ruling
from the IRS, that the ownership of shares of stock of a corporation or other
entity will
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not jeopardize the Previous General Partner's status as a REIT or the General
Partner's or the Special Limited Partner's status as a "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)), in which event the
term "Subsidiary" shall include the corporation or other entity which is the
subject of such opinion or ruling.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4 hereof.
"Tax Items" has the meaning set forth in Section 6.4.A hereof.
"Tendered Units" has the meaning set forth in Section 8.6.A hereof.
"Tendering Party" has the meaning set forth in Section 8.6.A hereof.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Transfer," when used with respect to a Partnership Unit, or all or any
portion of a Partnership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), Pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law; provided,
however, that when the term is used in Article 11 hereof, "Transfer" does not
include (a) any Redemption of Partnership Common Units by the Partnership, or
acquisition of Tendered Units by the Previous General Partner, pursuant to
Section 8.6 hereof or (b) any redemption of Partnership Units pursuant to any
Partnership Unit Designation. The terms "Transferred" and "Transferring" have
correlative meanings.
"Twelve-Month Period" means (a) as to an Original Limited Partner or any
successor-in-interest that is a Qualifying Party, a twelve-month period ending
on the day before the first (1st) anniversary of the Effective Date or on the
day before a subsequent anniversary thereof and (b) as to any other Qualifying
Party, a twelve-month period ending on the day before the first (1st)
anniversary of such Qualifying Party's becoming a Holder of Partnership Common
Units or on the day before a subsequent anniversary thereof; provided, however,
that the General Partner may, in its sole and absolute discretion, by written
agreement with a Qualifying Party, shorten the first Twelve-Month Period to a
period of less than twelve (12) months with respect to a Qualifying Party other
than an Original Limited Partner or successor-in-interest.
"Unitholder" means the General Partner or any Holder of Partnership Units.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the immediately
preceding Business Day.
"Value" means, on any Valuation Date with respect to a REIT Share, the
average of the daily market prices for ten (10) consecutive trading days
immediately preceding the Valuation Date (except that, as provided in Section
4.4.C. hereof, the market price for the trading day immediately preceding the
date of exercise of a stock option under the Previous General Partner's Stock
Option Plans shall be substituted for such average of daily market prices for
purposes of Section 4.4 hereof). The market price for any such trading day shall
be:
(i) if the REIT Shares are listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System,
the closing price, regular way, on such day, or if no such sale takes place
on such day, the average of the closing bid and asked prices on such day,
in either case as reported in the principal consolidated transaction
reporting system,
(ii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System,
the last reported sale price on such day or, if no sale takes place on such
day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner,
or
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(iii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System and
no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on
such day, as reported by a reliable quotation source designated by the
General Partner, or if there shall be no bid and asked prices on such day,
the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than ten (10) days prior to the date in question)
for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
(as defined in the definition of "REIT Shares Amount") that a holder of REIT
Shares would be entitled to receive, then the Value of such Rights shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization. The Partnership is a limited partnership
organized pursuant to the provisions of the Act and upon the terms and subject
to the conditions set forth in this Agreement. Except as expressly provided
herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name. The name of the Partnership is "AIMCO Properties, L.P."
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Partners of such change in the next regular communication to the Partners.
Section 2.3 Registered Office and Agent; Principal Office. The address of
the registered office of the Partnership in the State of Delaware is located at
32 Lockerman Square, Suite L-100, Dover, Delaware 19901, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office is The Prentice-Hall Corporation System, Inc. The principal
office of the Partnership is located at 1873 South Bellaire Street, Denver,
Colorado 80222, or such other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4 Power of Attorney.
A. Each Limited Partner and each Assignee hereby irrevocably
constitutes and appoints the General Partner, any Liquidator, and
authorized officers and attorneys-in-fact of each, and each of those acting
singly, in each case with full power of substitution, as its true and
lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement and the
Certificate and all amendments, supplements or restatements thereof)
that the General Partner or the Liquidator deems appropriate or
necessary to form, qualify or continue the existence or qualification of
the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability to the extent provided by
applicable law) in the State of Delaware and in all other jurisdictions
in which the Partnership may conduct business or own
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property; (b) all instruments that the General Partner deems appropriate
or necessary to reflect any amendment, change, modification or
restatement of this Agreement in accordance with its terms; (c) all
conveyances and other instruments or documents that the General Partner
or the Liquidator deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms of
this Agreement, including, without limitation, a certificate of
cancellation; (d) all conveyances and other instruments or documents
that the General Partner or the Liquidator deems appropriate or
necessary to reflect the distribution or exchange of assets of the
Partnership pursuant to the terms of this Agreement; (e) all instruments
relating to the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article 11, Article
12 or Article 13 hereof or the Capital Contribution of any Partner; and
(f) all certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges relating to
Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner,
to make, evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action that is made or given by the Partners
hereunder or is consistent with the terms of this Agreement or
appropriate or necessary, in the sole and absolute discretion of the
General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article 14 hereof
or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a special power coupled with an interest, in recognition of
the fact that each of the Limited Partners and Assignees will be relying
upon the power of the General Partner or the Liquidator to act as
contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive and not be affected by the
subsequent Incapacity of any Limited Partner or Assignee and the Transfer
of all or any portion of such Limited Partner's or Assignee's Partnership
Units or Partnership Interest and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each
such Limited Partner or Assignee hereby agrees to be bound by any
representation made by the General Partner or the Liquidator, acting in
good faith pursuant to such power of attorney; and each such Limited
Partner or Assignee hereby waives any and all defenses that may be
available to contest, negate or disaffirm the action of the General Partner
or the Liquidator, taken in good faith under such power of attorney. Each
Limited Partner or Assignee shall execute and deliver to the General
Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or the Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General
Partner or the Liquidator, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Partnership.
Section 2.5 Term. The term of the Partnership commenced on May 16, 1994,
the date that the original Certificate was filed in the office of the Secretary
of State of Delaware in accordance with the Act, and shall continue until
December 31, 2093 unless the Partnership is dissolved sooner pursuant to the
provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the
Partnership is to conduct any business, enterprise or activity permitted by or
under the Act, including, but not limited to, (i) to conduct the business of
ownership, construction, development and operation of multifamily rental
apartment communities, (ii) to enter into any partnership, joint venture,
business trust arrangement, limited liability company or other similar
arrangement to engage in any business permitted by or under the Act, or to own
interests in any entity
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engaged in any business permitted by or under the Act, (iii) to conduct the
business of providing property and asset management and brokerage services,
whether directly or through one or more partnerships, joint ventures,
subsidiaries, business trusts, limited liability companies or other similar
arrangements, and (iv) to do anything necessary or incidental to the foregoing;
provided, however, such business and arrangements and interests may be limited
to and conducted in such a manner as to permit the Previous General Partner, in
the sole and absolute discretion of the General Partner, at all times to be
classified as a REIT.
Section 3.2 Powers.
A. The Partnership shall be empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and
business described herein and for the protection and benefit of the
Partnership.
B. Notwithstanding any other provision in this Agreement, the General
Partner may cause the Partnership not to take, or to refrain from taking,
any action that, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the Previous
General Partner to continue to qualify as a REIT, (ii) could subject the
Previous General Partner to any additional taxes under Code Section 857 or
Code Section 4981 or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the Previous General
Partner, the General Partner, their securities or the Partnership, unless
such action (or inaction) under clause (i), clause (ii) or clause (iii)
above shall have been specifically consented to by the Previous General
Partner and the General Partner in writing.
Section 3.3 Partnership Only for Purposes Specified. The Partnership shall
be a limited partnership only for the purposes specified in Section 3.1 hereof,
and this Agreement shall not be deemed to create a company, venture or
partnership between or among the Partners with respect to any activities
whatsoever other than the activities within the purposes of the Partnership as
specified in Section 3.1 hereof. Except as otherwise provided in this Agreement,
no Partner shall have any authority to act for, bind, commit or assume any
obligation or responsibility on behalf of the Partnership, its properties or any
other Partner. No Partner, in its capacity as a Partner under this Agreement,
shall be responsible or liable for any indebtedness or obligation of another
Partner, nor shall the Partnership be responsible or liable for any indebtedness
or obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4 Representations and Warranties by the Parties.
A. Each Partner that is an individual (including, without limitation,
each Additional Limited Partner or Substituted Limited Partner as a
condition to becoming an Additional Limited Partner or a Substituted
Limited Partner) represents and warrants to each other Partner(s) that (i)
the consummation of the transactions contemplated by this Agreement to be
performed by such Partner will not result in a breach or violation of, or a
default under, any material agreement by which such Partner or any of such
Partner's property is bound, or any statute, regulation, order or other law
to which such Partner is subject, (ii) such Partner is neither a "foreign
person" within the meaning of Code Section 1445(f) nor a "foreign partner"
within the meaning of Code Section 1446(e), (iii) such Partner does not
own, directly or indirectly, (a) five percent (5%) or more of the total
combined voting power of all classes of stock entitled to vote, or five
percent (5%) or more of the total number of shares of all classes of stock,
of any corporation that is a tenant of either (I) the Previous General
Partner, the General Partner, the Special Limited Partner or any "qualified
REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with
respect to the Previous General Partner, (II) the Partnership or (III) any
partnership, venture or limited liability company of which the Previous
General Partner, the General Partner, the Special Limited Partner, any
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))
with respect to the Previous General Partner or the Partnership is a member
or (b) an interest of five percent (5%) or more in the assets or net
profits of any tenant of either (I) the Previous General Partner, the
General Partner, the Special Limited Partner or any "qualified REIT
subsidiary" (within the meaning of
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Code Section 856(i)(2)) with respect to the Previous General Partner, (II)
the Partnership or (III) any partnership, venture, or limited liability
company of which the Previous General Partner, the General Partner, the
Special Limited Partner, any "qualified REIT subsidiary" (within the
meaning of Code Section 856(i)(2)) with respect to the Previous General
Partner or the Partnership is a member and (iv) this Agreement is binding
upon, and enforceable against, such Partner in accordance with its terms.
B. Each Partner that is not an individual (including, without
limitation, each Additional Limited Partner or Substituted Limited Partner
as a condition to becoming an Additional Limited Partner or a Substituted
Limited Partner) represents and warrants to each other Partner(s) that (i)
all transactions contemplated by this Agreement to be performed by it have
been duly authorized by all necessary action, including, without
limitation, that of its general partner(s), committee(s), trustee(s),
beneficiaries, directors and/or shareholder(s), as the case may be, as
required, (ii) the consummation of such transactions shall not result in a
breach or violation of, or a default under, its partnership or operating
agreement, trust agreement, charter or bylaws, as the case may be, any
material agreement by which such Partner or any of such Partner's
properties or any of its partners, members, beneficiaries, trustees or
shareholders, as the case may be, is or are bound, or any statute,
regulation, order or other law to which such Partner or any of its
partners, members, trustees, beneficiaries or shareholders, as the case may
be, is or are subject, (iii) such Partner is neither a "foreign person"
within the meaning of Code Section 1445(f) nor a "foreign partner" within
the meaning of Code Section 1446(e), (iv) such Partner does not own,
directly or indirectly, (a) five percent (5%) or more of the total combined
voting power of all classes of stock entitled to vote, or five percent (5%)
or more of the total number of shares of all classes of stock, of any
corporation that is a tenant of either (I) the Previous General Partner,
the General Partner, the Special Limited Partner or any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to
the Previous General Partner, (II) the Partnership or (III) any
partnership, venture or limited liability company of which the Previous
General Partner, the General Partner, the Special Limited Partner, any
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))
with respect to the Previous General Partner or the Partnership is a member
or (b) an interest of five percent (5%) or more in the assets or net
profits of any tenant of either (I) the Previous General Partner, the
General Partner the Special Limited Partner or any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to
the Previous General Partner, (II) the Partnership or (III) any
partnership, venture or limited liability company for which the Previous
General Partner, the General Partner, the Special Limited Partner, any
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))
with respect to the Previous General Partner or the Partnership is a member
and (v) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms.
C. Each Partner (including, without limitation, each Substituted
Limited Partner as a condition to becoming a Substituted Limited Partner)
represents, warrants and agrees that it has acquired and continues to hold
its interest in the Partnership for its own account for investment only and
not for the purpose of, or with a view toward, the resale or distribution
of all or any part thereof, nor with a view toward selling or otherwise
distributing such interest or any part thereof at any particular time or
under any predetermined circumstances. Each Partner further represents and
warrants that it is a sophisticated investor, able and accustomed to
handling sophisticated financial matters for itself, particularly real
estate investments, and that it has a sufficiently high net worth that it
does not anticipate a need for the funds that it has invested in the
Partnership in what it understands to be a highly speculative and illiquid
investment.
D. The representations and warranties contained in Sections 3.4.A,
3.4.B and 3.4.C hereof shall survive the execution and delivery of this
Agreement by each Partner (and, in the case of an Additional Limited
Partner or a Substituted Limited Partner, the admission of such Additional
Limited Partner or Substituted Limited Partner as a Limited Partner in the
Partnership) and the dissolution, liquidation and termination of the
Partnership.
E. Each Partner (including, without limitation, each Substituted
Limited Partner as a condition to becoming a Substituted Limited Partner)
hereby acknowledges that no representations as to potential
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profit, cash flows, funds from operations or yield, if any, in respect of
the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that
projections and any other information, including, without limitation,
financial and descriptive information and documentation, that may have been
in any manner submitted to such Partner shall not constitute any
representation or warranty of any kind or nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners. The Partners have
heretofore made Capital Contributions to the Partnership. Each Partner owns
Partnership Units in the amount set forth for such Partner on Exhibit A, as the
same may be amended from time to time by the General Partner to the extent
necessary to reflect accurately sales, exchanges or other Transfers,
redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on a Partner's ownership of
Partnership Units. Except as provided by law or in Section 4.2, 4.3 or 10.4
hereof, the Partners shall have no obligation or right to make any additional
Capital Contributions or loans to the Partnership.
Section 4.2 Issuances of Additional Partnership Interests.
A. General. The General Partner is hereby authorized to cause the
Partnership to issue additional Partnership Interests, in the form of
Partnership Units, for any Partnership purpose, at any time or from time to
time, to the Partners (including the General Partner and the Special
Limited Partner) or to other Persons, and to admit such Persons as
Additional Limited Partners, for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole and
absolute discretion, all without the approval of any Limited Partners.
Without limiting the foregoing, the General Partner is expressly authorized
to cause the Partnership to issue Partnership Units (i) upon the
conversion, redemption or exchange of any Debt, Partnership Units or other
securities issued by the Partnership, (ii) for less than fair market value,
so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership, and
(iii) in connection with any merger of any other Person into the
Partnership if the applicable merger agreement provides that Persons are to
receive Partnership Units in exchange for their interests in the Person
merging into the Partnership. Subject to Delaware law, any additional
Partnership Interests may be issued in one or more classes, or one or more
series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers and
duties as shall be determined by the General Partner, in its sole and
absolute discretion without the approval of any Limited Partner, and set
forth in a written document thereafter attached to and made an exhibit to
this Agreement (each, a "Partnership Unit Designation"). Without limiting
the generality of the foregoing, the General Partner shall have authority
to specify (a) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests;
(b) the right of each such class or series of Partnership Interests to
share in Partnership distributions; (c) the rights of each such class or
series of Partnership Interests upon dissolution and liquidation of the
Partnership; (d) the voting rights, if any, of each such class or series of
Partnership Interests; and (e) the conversion, redemption or exchange
rights applicable to each such class or series of Partnership Interests.
Upon the issuance of any additional Partnership Interest, the General
Partner shall amend Exhibit A as appropriate to reflect such issuance.
B. Issuances to the General Partner or Special Limited Partner. No
additional Partnership Units shall be issued to the General Partner or the
Special Limited Partner unless (i) the additional Partnership Units are
issued to all Partners in proportion to their respective Percentage
Interests, (ii) (a) the additional Partnership Units are (x) Partnership
Common Units issued in connection with an issuance of REIT Shares, or (y)
Partnership Units (other than Partnership Common Units) issued in
connection with an issuance of Preferred Shares, New Securities or other
interests in the Previous General Partner (other than REIT Shares), which
Preferred Shares, New Securities or other interests have designations,
preferences and other rights, terms and provisions that are substantially
the same as the designations, preferences and other rights, terms and
provisions of the additional Partnership Units
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issued to the General Partner or the Special Limited Partner, and (b) the
General Partner or the Special Limited Partner, as the case may be,
contributes to the Partnership the cash proceeds or other consideration
received in connection with the issuance of such REIT Shares, Preferred
Shares, New Securities or other interests in the Previous General Partner,
(iii) the additional Partnership Units are issued upon the conversion,
redemption or exchange of Debt, Partnership Units or other securities
issued by the Partnership, or (iv) the additional Partnership Units are
issued pursuant to Section 4.6.
C. No Preemptive Rights. No Person, including, without limitation, any
Partner or Assignee, shall have any preemptive, preferential, participation
or similar right or rights to subscribe for or acquire any Partnership
Interest.
Section 4.3 Additional Funds.
A. General. The General Partner may, at any time and from time to
time, determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition or development of additional Properties, for
the redemption of Partnership Units or for such other purposes as the
General Partner may determine. Additional Funds may be obtained by the
Partnership, at the election of the General Partner, in any manner provided
in, and in accordance with, the terms of this Section 4.3 without the
approval of any Limited Partners.
B. Additional Capital Contributions. The General Partner, on behalf of
the Partnership, may obtain any Additional Funds by accepting Capital
Contributions from any Partners or other Persons and issuing additional
Partnership Units in consideration therefor.
C. Loans by Third Parties. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to
incur Debt to any Person (other than the Previous General Partner, the
General Partner or the Special Limited Partner) upon such terms as the
General Partner determines appropriate, including making such Debt
convertible, redeemable or exchangeable for Partnership Units; provided,
however, that the Partnership shall not incur any such Debt if (i) a
breach, violation or default of such Debt would be deemed to occur by
virtue of the Transfer of any Partnership Interest, or (ii) such Debt is
recourse to any Partner (unless the Partner otherwise agrees).
D. General Partner Loans. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to
incur Debt with the Previous General Partner, the General Partner or the
Special Limited Partner (each, a "General Partner Loan") if (i) such Debt
is, to the extent permitted by law, on substantially the same terms and
conditions (including interest rate, repayment schedule, and conversion,
redemption, repurchase and exchange rights) as Funding Debt incurred by the
Previous General Partner, the General Partner or the Special Limited
Partner, the net proceeds of which are loaned to the Partnership to provide
such Additional Funds, or (ii) such Debt is on terms and conditions no less
favorable to the Partnership than would be available to the Partnership
from any third party; provided, however, that the Partnership shall not
incur any such Debt if (a) a breach, violation or default of such Debt
would be deemed to occur by virtue of the Transfer of any Partnership
Interest, or (b) such Debt is recourse to any Partner (unless the Partner
otherwise agrees).
E. Issuance of Securities by the Previous General Partner. The
Previous General Partner shall not issue any additional REIT Shares,
Preferred Shares, Junior Shares or New Securities unless (i) the Previous
General Partner contributes the cash proceeds or other consideration
received from the issuance of such additional REIT Shares, Preferred
Shares, Junior Shares or New Securities, as the case may be, and from the
exercise of the rights contained in any such additional New Securities, to
either or both of the General Partner and the Special Limited Partner, and
(ii) it or they, as the case may be, contribute such cash proceeds or other
consideration to the Partnership in exchange for (x) in the case of an
issuance of REIT Shares, Partnership Common Units, or (y) in the case of an
issuance of Preferred Shares, Junior Shares or New Securities, Partnership
Units with designations, preferences and other rights, terms and provisions
that are substantially the same as the designations, preferences and other
rights, terms and provisions of such Preferred Shares, Junior Shares or New
Securities; provided, however, that notwithstanding the foregoing, the
Previous General Partner may issue REIT Shares,
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Preferred Shares, Junior Shares or New Securities (a) pursuant to Section
4.4 or Section 8.6.B hereof, (b) pursuant to a dividend or distribution
(including any stock split) of REIT Shares, Preferred Shares, Junior Shares
or New Securities to all of the holders of REIT Shares, Preferred Shares,
Junior Shares or New Securities, as the case may be, (c) upon a conversion,
redemption or exchange of Preferred Shares, (d) upon a conversion of Junior
Shares into REIT Shares, (e) upon a conversion, redemption, exchange or
exercise of New Securities, or (f) in connection with an acquisition of a
property or other asset to be owned, directly or indirectly, by the
Previous General Partner if the General Partner determines that such
acquisition is in the best interests of the Partnership. In the event of
any issuance of additional REIT Shares, Preferred Shares, Junior Shares or
New Securities by the Previous General Partner, and the contribution to the
Partnership, by the General Partner or the Special Limited Partner, of the
cash proceeds or other consideration received from such issuance, the
Partnership shall pay the Previous General Partner's expenses associated
with such issuance, including any underwriting discounts or commissions.
Section 4.4 Stock Option Plans.
A. Options Granted to Company Employees and Independent Directors. If
at any time or from time to time, in connection with the Previous General
Partner's Stock Option Plans, a stock option granted to a Company Employee
or Independent Director is duly exercised:
(1) The Special Limited Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership in an
amount equal to the exercise price paid to the Previous General Partner
by such exercising party in connection with the exercise of such stock
option.
(2) Notwithstanding the amount of the Capital Contribution actually
made pursuant to Section 4.4.A(1) hereof, the Special Limited Partner
shall be deemed to have contributed to the Partnership as a Capital
Contribution, in consideration of an additional Limited Partner Interest
(expressed in and as additional Partnership Common Units), an amount
equal to the Value of a REIT Share as of the date of exercise multiplied
by the number of REIT Shares then being issued in connection with the
exercise of such stock option.
(3) An equitable Percentage Interest adjustment shall be made in
which the Special Limited Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.A(2) hereof.
B. Options Granted to Partnership Employees. If at any time or from
time to time, in connection with the Previous General Partner's Stock
Option Plans, a stock option granted to a Partnership Employee is duly
exercised:
(1) The General Partner shall cause the Previous General Partner to
sell to the Partnership, and the Partnership shall purchase from the
Previous General Partner, the number of REIT Shares as to which such
stock option is being exercised. The purchase price per REIT Share for
such sale of REIT Shares to the Partnership shall be the Value of a REIT
Share as of the date of exercise of such stock option.
(2) The Partnership shall sell to the Optionee (or if the Optionee
is an employee of a Partnership Subsidiary, the Partnership shall sell
to such Partnership Subsidiary, which in turn shall sell to the
Optionee), for a cash price per share equal to the Value of a REIT Share
at the time of the exercise, the number of REIT Shares equal to (a) the
exercise price paid to the Previous General Partner by the exercising
party in connection with the exercise of such stock option divided by
(b) the Value of a REIT Share at the time of such exercise.
(3) The Partnership shall transfer to the Optionee (or if the
Optionee is an employee of a Partnership Subsidiary, the Partnership
shall transfer to such Partnership Subsidiary, which in turn shall
transfer to the Optionee) at no additional cost, as additional
compensation, the number of REIT Shares equal to the number of REIT
Shares described in Section 4.4.B(1) hereof less the number of REIT
Shares described in Section 4.4.B(2) hereof.
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(4) The Special Limited Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership of an
amount equal to all proceeds received (from whatever source, but
excluding any payment in respect of payroll taxes or other withholdings)
by the Previous General Partner, the General Partner or the Special
Limited Partner in connection with the exercise of such stock option. An
equitable Percentage Interest adjustment shall be made in which the
Special Limited Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.B(1) hereof.
C. Special Valuation Rule. For purposes of this Section 4.4, in
determining the Value of a REIT Share, only the trading date immediately
preceding the exercise of the relevant stock option under the Previous
General Partner's Stock Option Plans shall be considered.
D. Future Stock Incentive Plans. Nothing in this Agreement shall be
construed or applied to preclude or restrain the Previous General Partner,
the General Partner or the Special Limited Partner from adopting, modifying
or terminating stock incentive plans, in addition to the Previous General
Partner's Stock Option Plans, for the benefit of employees, directors or
other business associates of the Previous General Partner, the General
Partner, the Special Limited Partner, the Partnership or any of their
Affiliates. The Limited Partners acknowledge and agree that, in the event
that any such plan is adopted, modified or terminated by the Previous
General Partner, the General Partner or the Special Limited Partner
amendments to this Section 4.4 may become necessary or advisable and that
any approval or consent to any such amendments requested by the Previous
General Partner, the General Partner or the Special Limited Partner shall
not be unreasonably withheld or delayed.
Section 4.5 No Interest; No Return. No Partner shall be entitled to
interest on its Capital Contribution or on such Partner's Capital Account.
Except as provided herein or by law, no Partner shall have any right to demand
or receive the return of its Capital Contribution from the Partnership.
Section 4.6 Conversion of Junior Shares. If, at any time, any of the
Junior Shares are converted into REIT Shares, in whole or in part, then a number
of Partnership Common Units equal to (i) the number of REIT Shares issued upon
such conversion divided by (ii) the Adjustment Factor then in effect shall be
issued to the General Partner and the Special Limited Partner (and between the
General Partner and the Special Limited Partner in proportion to their ownership
of Partnership Common Units immediately preceding such conversion), and the
Percentage Interests of the General Partner and the Limited Partners (including
the Special Limited Partner) shall be adjusted to reflect such conversion.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. Subject to
the terms of any Partnership Unit Designation, the General Partner shall cause
the Partnership to distribute quarterly all, or such portion as the General
Partner may in its sole and absolute discretion determine, of Available Cash
generated by the Partnership during such quarter to the Holders of Partnership
Common Units in accordance with their respective Partnership Common Units held
on such Partnership Record Date. Distributions payable with respect to any
Partnership Units that were not outstanding during the entire quarterly period
in respect of which any distribution is made shall be prorated based on the
portion of the period that such units were outstanding. The General Partner in
its sole and absolute discretion may distribute to the Unitholders Available
Cash on a more frequent basis and provide for an appropriate record date. The
General Partner shall take such reasonable efforts, as determined by it in its
sole and absolute discretion and consistent with the Previous General Partner's
qualification as a REIT, to cause the Partnership to distribute sufficient
amounts to enable (i) the General Partner and the Special Limited Partner to
transfer funds to the Previous General Partner and (ii) the Previous General
Partner to pay shareholder dividends that will (a) satisfy the requirements for
qualifying as a REIT under the Code and Regulations (the "REIT Requirements")
and (b) avoid any federal income or excise tax liability of the Previous General
Partner.
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Section 5.2 Distributions in Kind. No right is given to any Unitholder to
demand and receive property other than cash as provided in this Agreement. The
General Partner may determine, in its sole and absolute discretion, to make a
distribution in kind of Partnership assets to the Unitholders, and such assets
shall be distributed in such a fashion as to ensure that the fair market value
is distributed and allocated in accordance with Articles 5, 6 and 10 hereof.
Section 5.3 Amounts Withheld. All amounts withheld pursuant to the Code or
any provisions of any state or local tax law and Section 10.4 hereof with
respect to any allocation, payment or distribution to any Unitholder shall be
treated as amounts paid or distributed to such Unitholder pursuant to Section
5.1 hereof for all purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation. Notwithstanding the other
provisions of this Article 5, net proceeds from a Terminating Capital
Transaction, and any other cash received or reductions in reserves made after
commencement of the liquidation of the Partnership, shall be distributed to the
Unitholders in accordance with Section 13.2 hereof.
Section 5.5 Restricted Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, neither the Partnership nor the General
Partner, on behalf of the Partnership, shall make a distribution to any
Unitholder on account of its Partnership Interest or interest in Partnership
Units if such distribution would violate Section 17-607 of the Act or other
applicable law.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net
Loss. Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each Fiscal Year of the Partnership as of the end of
each such year. Except as otherwise provided in this Article 6, and subject to
Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income or
Net Loss shall be treated as an allocation of the same share of each item of
income, gain, loss or deduction that is taken into account in computing Net
Income or Net Loss.
Section 6.2 General Allocations. Subject to the terms of any Partnership
Unit Designation, except as otherwise provided in this Article 6 and subject to
Section 11.6.C hereof, Net Income and Net Loss shall be allocated to each of the
Holders of Partnership Common Units in accordance with their respective
Partnership Common Units at the end of each Fiscal Year.
Section 6.3 Additional Allocation Provisions. Notwithstanding the
foregoing provisions of this Article 6:
A. Intentionally Omitted.
B. Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of
Section 6.2 hereof, or any other provision of this Article 6, if there
is a net decrease in Partnership Minimum Gain during any Fiscal Year,
each Holder of Partnership Common Units shall be specially allocated
items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Holder's share of the net
decrease in Partnership Minimum Gain, as determined under Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be allocated
to each Holder pursuant thereto. The items to be allocated shall be
determined in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Section 6.3.B(i) is intended to qualify as a
"minimum gain chargeback" within the meaning of Regulations Section
1.704-2(f) and shall be interpreted consistently therewith.
(ii) Partner Minimum Gain Chargeback. Except as otherwise provided
in Regulations Section 1.704-2(i)(4) or in Section 6.3.B(i) hereof, if
there is a net decrease in Partner Minimum Gain
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attributable to a Partner Nonrecourse Debt during any Fiscal Year, each
Holder of Partnership Common Units who has a share of the Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined
in accordance with Regulations Section 1.704-2(i)(5), shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Holder's share
of the net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.7042(i)(4). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated to
each General Partner, Limited Partner and other Holder pursuant thereto.
The items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section
6.3.B(ii) is intended to qualify as a "chargeback of partner nonrecourse
debt minimum gain" within the meaning of Regulations Section 1.704-2(i)
and shall be interpreted consistently therewith.
(iii) Nonrecourse Deductions and Partner Nonrecourse
Deductions. Any Nonrecourse Deductions for any Fiscal Year shall be
specially allocated to the Holders of Partnership Common Units in
accordance with their Partnership Common Units. Any Partner Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the
Holder(s) who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable, in accordance with Regulations Section 1.704-2(i).
(iv) Qualified Income Offset. If any Holder of Partnership Common
Units unexpectedly receives an adjustment, allocation or distribution
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6),
items of Partnership income and gain shall be allocated, in accordance
with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an
amount and manner sufficient to eliminate, to the extent required by
such Regulations, the Adjusted Capital Account Deficit of such Holder as
quickly as possible, provided that an allocation pursuant to this
Section 6.3.B(iv) shall be made if and only to the extent that such
Holder would have an Adjusted Capital Account Deficit after all other
allocations provided in this Article 6 have been tentatively made as if
this Section 6.3.B(iv) were not in the Agreement. It is intended that
this Section 6.3.B(iv) qualify and be construed as a "qualified income
offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
(v) Gross Income Allocation. In the event that any Holder of
Partnership Common Units has a deficit Capital Account at the end of any
Fiscal Year that is in excess of the sum of (1) the amount (if any) that
such Holder is obligated to restore to the Partnership upon complete
liquidation of such Holder's Partnership Interest (including, the
Holder's interest in outstanding Partnership Preferred Units and other
Partnership Units) and (2) the amount that such Holder is deemed to be
obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Holder
shall be specially allocated items of Partnership income and gain in the
amount of such excess to eliminate such deficit as quickly as possible,
provided that an allocation pursuant to this Section 6.3.B(v) shall be
made if and only to the extent that such Holder would have a deficit
Capital Account in excess of such sum after all other allocations
provided in this Article 6 have been tentatively made as if this Section
6.3.B(v) and Section 6.3.B(iv) hereof were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent that any
allocation of Net Loss would cause or increase an Adjusted Capital
Account Deficit as to any Holder of Partnership Common Units, such
allocation of Net Loss shall be reallocated among the other Holders of
Partnership Common Units in accordance with their respective Partnership
Common Units, subject to the limitations of this Section 6.3.B(vi).
(vii) Section 754 Adjustment. To the extent that an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2) (iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the
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result of a distribution to a Holder of Partnership Common Units in
complete liquidation of its interest in the Partnership, the amount of
such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such gain or loss shall be
specially allocated to the Holders in accordance with their Partnership
Common Units in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Holders to whom such
distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocations. The allocations set forth in Sections
6.3.B(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the "Regulatory
Allocations") are intended to comply with certain regulatory
requirements, including the requirements of Regulations Sections
1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.1
hereof, the Regulatory Allocations shall be taken into account in
allocating other items of income, gain, loss and deduction among the
Holders of Partnership Common Units so that to the extent possible
without violating the requirements giving rise to the Regulatory
Allocations, the net amount of such allocations of other items and the
Regulatory Allocations to each Holder of a Partnership Common Unit shall
be equal to the net amount that would have been allocated to each such
Holder if the Regulatory Allocations had not occurred.
C. Special Allocations Upon Liquidation. Notwithstanding any provision
in this Article VI to the contrary, in the event that the Partnership
disposes of all or substantially all of its assets in a transaction that
will lead to a liquidation of the Partnership pursuant to Article XIII
hereof, then any Net Income or Net Loss realized in connection with such
transaction and thereafter (and, if necessary, constituent items of income,
gain, loss and deduction) shall be specially allocated among the Partners
as required so as to cause liquidating distributions pursuant to Section
13.2.A(4) hereof to be made in the same amounts and proportions as would
have resulted had such distributions instead been made pursuant to Section
5.1 hereof.
D. Allocation of Excess Nonrecourse Liabilities. For purposes of
determining a Holder's proportional share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), each Holder's interest in Partnership profits shall be such
Holder's share of Partnership Common Units.
Section 6.4 Tax Allocations.
A. In General. Except as otherwise provided in this Section 6.4, for
income tax purposes under the Code and the Regulations each Partnership
item of income, gain, loss and deduction (collectively, "Tax Items") shall
be allocated among the Holders of Partnership Common Units in the same
manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.2 and 6.3 hereof.
B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.4.A hereof, Tax Items with respect to Property that is
contributed to the Partnership with a Gross Asset Value that varies from
its basis in the hands of the contributing Partner immediately preceding
the date of contribution shall be allocated among the Holders of
Partnership Common Units for income tax purposes pursuant to Regulations
promulgated under Code Section 704(c) so as to take into account such
variation. The Partnership shall account for such variation under any
method approved under Code Section 704(c) and the applicable Regulations as
chosen by the General Partner, including, without limitation, the
"traditional method" as described in Regulations Section 1.704-3(b). In the
event that the Gross Asset Value of any partnership asset is adjusted
pursuant to subsection (b) of the definition of "Gross Asset Value"
(provided in Article 1 hereof), subsequent allocations of Tax Items with
respect to such asset shall take account of the variation, if any, between
the adjusted basis of such asset and its Gross Asset Value in the same
manner as under Code Section 704(c) and the applicable Regulations.
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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and
shall be exclusively vested in the General Partner, and no Limited Partner
shall have any right to participate in or exercise control or management
power over the business and affairs of the Partnership. The General Partner
may not be removed by the Partners with or without cause, except with the
Consent of the General Partner. In addition to the powers now or hereafter
granted a general partner of a limited partnership under applicable law or
that are granted to the General Partner under any other provision of this
Agreement, the General Partner, subject to the other provisions hereof
including Section 7.3, shall have full power and authority to do all things
deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on loans and
borrowing money to permit the Partnership to make distributions to its
Partners in such amounts as will permit the Previous General Partner (so
long as the Previous General Partner qualifies as a REIT) to avoid the
payment of any federal income tax (including, for this purpose, any
excise tax pursuant to Code Section 4981) and to make distributions to
its shareholders sufficient to permit the Previous General Partner to
maintain REIT status or otherwise to satisfy the REIT Requirements), the
assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness (including
the securing of same by deed to secure debt, mortgage, deed of trust or
other lien or encumbrance on the Partnership's assets) and the incurring
of any obligations that it deems necessary for the conduct of the
activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(3) the acquisition, sale, transfer, exchange or other disposition
of any assets of the Partnership (including, but not limited to, the
exercise or grant of any conversion, option, privilege or subscription
right or any other right available in connection with any assets at any
time held by the Partnership) or the merger, consolidation,
reorganization or other combination of the Partnership with or into
another entity;
(4) the mortgage, pledge, encumbrance or hypothecation of any
assets of the Partnership, the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose consistent
with the terms of this Agreement and on any terms that it sees fit,
including, without limitation, the financing of the operations and
activities of the General Partner, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to other Persons
(including, without limitation, the Partnership's Subsidiaries) and the
repayment of obligations of the Partnership, its Subsidiaries and any
other Person in which it has an equity investment, and the making of
capital contributions to and equity investments in the Partnership's
Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any Property,
including, without limitation, any Contributed Property, or other asset
of the Partnership or any Subsidiary;
(6) the negotiation, execution and performance of any contracts,
leases, conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's powers under
this Agreement, including contracting with contractors, developers,
consultants, accountants, legal counsel, other professional advisors and
other agents and the payment of their expenses and compensation out of
the Partnership's assets;
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(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement, the holding, management,
investment and reinvestment of cash and other assets of the Partnership,
and the collection and receipt of revenues, rents and income of the
Partnership;
(8) the selection and dismissal of employees of the Partnership or
the General Partner (including, without limitation, employees having
titles or offices such as "president," "vice president," "secretary" and
"treasurer"), and agents, outside attorneys, accountants, consultants
and contractors of the Partnership or the General Partner and the
determination of their compensation and other terms of employment or
hiring;
(9) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(10) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, limited liability companies, joint ventures or other
relationships that it deems desirable (including, without limitation,
the acquisition of interests in, and the contributions of property to,
any Subsidiary and any other Person in which it has an equity investment
from time to time); provided, however, that, as long as the Previous
General Partner has determined to continue to qualify as a REIT, the
General Partner may not engage in any such formation, acquisition or
contribution that would cause the Previous General Partner to fail to
qualify as a REIT or the General Partner to fail to qualify as a
"qualified REIT subsidiary" within the meaning of Code Section
856(i)(2);
(11) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement, compromise,
submission to arbitration or any other form of dispute resolution, or
abandonment, of any claim, cause of action, liability, debt or damages,
due or owing to or from the Partnership, the commencement or defense of
suits, legal proceedings, administrative proceedings, arbitrations or
other forms of dispute resolution, and the representation of the
Partnership in all suits or legal proceedings, administrative
proceedings, arbitrations or other forms of dispute resolution, the
incurring of legal expense, and the indemnification of any Person
against liabilities and contingencies to the extent permitted by law;
(12) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Subsidiary or any
other Person (including, without limitation, the contribution or loan of
funds by the Partnership to such Persons);
(13) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation
as it may adopt; provided that such methods are otherwise consistent
with the requirements of this Agreement;
(14) the enforcement of any rights against any Partner pursuant to
representations, warranties, covenants and indemnities relating to such
Partner's contribution of property or assets to the Partnership;
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the
Partnership has a direct or indirect interest, or jointly with any such
Subsidiary or other Person;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest, pursuant to contractual or other
arrangements with such Person;
(18) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties,
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indemnities, waivers, releases or legal instruments or agreements in
writing necessary or appropriate in the judgment of the General Partner
for the accomplishment of any of the powers of the General Partner
enumerated in this Agreement;
(19) the issuance of additional Partnership Units, as appropriate
and in the General Partner's sole and absolute discretion, in connection
with Capital Contributions by Additional Limited Partners and additional
Capital Contributions by Partners pursuant to Article 4 hereof; and
(20) an election to dissolve the Partnership pursuant to Section
13.1.C hereof.
B. Each of the Limited Partners agrees that, except as provided in
Section 7.3 hereof, the General Partner is authorized to execute, deliver
and perform the above-mentioned agreements and transactions on behalf of
the Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement (except as provided
in Section 7.3 hereof), the Act or any applicable law, rule or regulation.
The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement
shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any
other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. At all times from and after the date hereof, the General Partner
may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance on the Properties of the Partnership and (ii) liability
insurance for the Indemnitees hereunder.
D. At all times from and after the date hereof, the General Partner
may cause the Partnership to establish and maintain working capital and
other reserves in such amounts as the General Partner, in its sole and
absolute discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner (including the General Partner) of any action
taken by it. The General Partner and the Partnership shall not have
liability to a Limited Partner under any circumstances as a result of an
income tax liability incurred by such Limited Partner as a result of an
action (or inaction) by the General Partner pursuant to its authority under
this Agreement so long as the action or inaction is taken in good faith.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state, the
District of Columbia or any other jurisdiction, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner shall not be required, before or after filing, to
deliver or mail a copy of the Certificate or any amendment thereto to any
Limited Partner. The General Partner shall use all reasonable efforts to cause
to be filed such other certificates or documents as may be reasonable and
necessary or appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability to the extent provided by applicable law) in the
State of Delaware and any other state, or the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3 Restrictions on General Partner's Authority.
A. The General Partner may not take any action in contravention of
this Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in
this Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
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(3) admit a Person as a Partner, except as otherwise provided in
this Agreement;
(4) perform any act that would subject a Limited Partner to
liability as a general partner in any jurisdiction or any other
liability except as provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or restricting,
the ability of (a) the General Partner, the Previous General Partner or
the Partnership from satisfying its obligations under Section 8.6 hereof
in full or (b) a Limited Partner from exercising its rights under
Section 8.6 hereof to effect a Redemption in full, except, in either
case, with the written consent of such Limited Partner affected by the
prohibition or restriction.
B. The General Partner shall not, without the prior Consent of the
Limited Partners, undertake, on behalf of the Partnership, any of the
following actions or enter into any transaction that would have the effect
of such transactions:
(1) except as provided in Section 7.3.C hereof, amend, modify or
terminate this Agreement other than to reflect the admission,
substitution, termination or withdrawal of Partners pursuant to Article
11 or Article 12 hereof;
(2) make a general assignment for the benefit of creditors or
appoint or acquiesce in the appointment of a custodian, receiver or
trustee for all or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership; or
(4) subject to the rights of Transfer provided in Sections 11.1.C
and 11.2 hereof, approve or acquiesce to the Transfer of the Partnership
Interest of the General Partner, or admit into the Partnership any
additional or successor General Partners.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall
have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the
following purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution or withdrawal of
Partners or the termination of the Partnership in accordance with this
Agreement, and to amend Exhibits A and C in connection with such
admission, substitution or withdrawal;
(3) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect,
or to cure any ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this Agreement that
will not be inconsistent with law or with the provisions of this
Agreement;
(4) to satisfy any requirements, conditions or guidelines contained
in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law;
(5) (a) to reflect such changes as are reasonably necessary (i) for
either the General Partner or the Special Limited Partner, as the case
may be, to maintain its status as a "qualified REIT subsidiary" within
the meaning of Code Section 856(i)(2) or (ii) for the Previous General
Partner to maintain its status as a REIT or to satisfy the REIT
Requirement; (b) to reflect the Transfer of all or any part of a
Partnership Interest among the Previous General Partner, the General
Partner, the Special Limited Partner or any other "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect
to the Previous General Partner;
(6) to modify the manner in which Capital Accounts are computed
(but only to the extent set forth in the definition of "Capital Account"
or contemplated by the Code or the Regulations); and
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(7) the issuance of additional Partnership Interests in accordance
with Section 4.2.
The General Partner will provide notice to the Limited Partners when any
action under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement
shall not be amended, and no action may be taken by the General Partner,
without the Consent of each Partner adversely affected, if such amendment
or action would (i) convert a Limited Partner Interest in the Partnership
into a General Partner Interest (except as a result of the General Partner
acquiring such Partnership Interest), (ii) modify the limited liability of
a Limited Partner, (iii) alter the rights of any Partner to receive the
distributions to which such Partner is entitled, pursuant to Article 5 or
Section 13.2.A(4) hereof, or alter the allocations specified in Article 6
hereof (except, in any case, as permitted pursuant to Sections 4.2 and
7.3.C hereof), (iv) alter or modify the Redemption rights, Cash Amount or
REIT Shares Amount as set forth in Sections 8.6 and 11.2 hereof, or amend
or modify any related definitions, or (v) amend this Section 7.3.D;
provided, however, that the Consent of each Partner adversely affected
shall not be required for any amendment or action that affects all Partners
holding the same class or series of Partnership Units on a uniform or pro
rata basis. Further, no amendment may alter the restrictions on the General
Partner's authority set forth elsewhere in this Section 7.3 without the
Consent specified therein. Any such amendment or action consented to by any
Partner shall be effective as to that Partner, notwithstanding the absence
of such consent by any other Partner.
Section 7.4 Reimbursement of the General Partner.
A. The General Partner shall not be compensated for its services as
general partner of the Partnership except as provided in elsewhere in this
Agreement (including the provisions of Articles 5 and 6 hereof regarding
distributions, payments and allocations to which it may be entitled in its
capacity as the General Partner).
B. Subject to Sections 7.4.C and 15.11 hereof, the Partnership shall
be liable for, and shall reimburse the General Partner on a monthly basis,
or such other basis as the General Partner may determine in its sole and
absolute discretion, for all sums expended in connection with the
Partnership's business, including, without limitation, (i) expenses
relating to the ownership of interests in and management and operation of,
or for the benefit of, the Partnership, (ii) compensation of officers and
employees, including, without limitation, payments under future
compensation plans of the General Partner that may provide for stock units,
or other phantom stock, pursuant to which employees of the General Partner
will receive payments based upon dividends on or the value of REIT Shares,
(iii) director fees and expenses and (iv) all costs and expenses of the
General Partner being a public company, including costs of filings with the
SEC, reports and other distributions to its shareholders; provided,
however, that the amount of any reimbursement shall be reduced by any
interest earned by the General Partner with respect to bank accounts or
other instruments or accounts held by it on behalf of the Partnership as
permitted pursuant to Section 7.5 hereof. Such reimbursements shall be in
addition to any reimbursement of the General Partner as a result of
indemnification pursuant to Section 7.7 hereof.
C. To the extent practicable, Partnership expenses shall be billed
directly to and paid by the Partnership and, subject to Section 15.11
hereof, reimbursements to the General Partner or any of its Affiliates by
the Partnership pursuant to this Section 7.4 shall be treated as
"guaranteed payments" within the meaning of Code Section 707(c).
Section 7.5 Outside Activities of the Previous General Partner and the
General Partner. Neither the General Partner nor the Previous General Partner
shall directly or indirectly enter into or conduct any business, other than in
connection with (a) the ownership, acquisition and disposition of Partnership
Interests as General Partner, (b) the management of the business of the
Partnership, (c) the operation of the Previous General Partner as a reporting
company with a class (or classes) of securities registered under the Exchange
Act, (d) the Previous General Partner's operations as a REIT, (e) the offering,
sale, syndication, private placement or public offering of stock, bonds,
securities or other interests, (f) financing or refinancing of any
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type related to the Partnership or its assets or activities, (g) the General
Partner's qualification as a "qualified REIT subsidiary" (within the meaning of
Code Section 856(i)(2)) and (h) such activities as are incidental thereto.
Nothing contained herein shall be deemed to prohibit the General Partner or the
Previous General Partner from executing guarantees of Partnership debt for which
it would otherwise be liable in its capacity as General Partner. Subject to
Section 7.3.B hereof, the General Partner, the Previous General Partner, the
Special Limited Partner and all "qualified REIT subsidiaries" (within the
meaning of Code Section 856(i)(2)), taken as a group, shall not own any assets
or take title to assets (other than temporarily in connection with an
acquisition prior to contributing such assets to the Partnership) other than
Partnership Interests as the General Partner or Special Limited Partner and
other than such cash and cash equivalents, bank accounts or similar instruments
or accounts as such group deems reasonably necessary, taking into account
Section 7.1.D hereof and the requirements necessary for the Previous General
Partner to qualify as a REIT and for the Previous General Partner, the General
Partner and the Special Limited Partner to carry out their respective
responsibilities contemplated under this Agreement and the Charter.
Notwithstanding the foregoing, if the Previous General Partner or the General
Partner acquires assets in its own name and owns Property other than through the
Partnership, the Partners agree to negotiate in good faith to amend this
Agreement, including, without limitation, the definition of "Adjustment Factor,"
to reflect such activities and the direct ownership of assets by the Previous
General Partner or the General Partner. The General Partner and any Affiliates
of the General Partner may acquire Limited Partner Interests and shall be
entitled to exercise all rights of a Limited Partner relating to such Limited
Partner Interests.
Section 7.6 Contracts with Affiliates.
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and
such Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5 hereof and subject to Section 3.1
hereof, the Partnership may transfer assets to joint ventures, limited
liability companies, partnerships, corporations, business trusts or other
business entities in which it is or thereby becomes a participant upon such
terms and subject to such conditions consistent with this Agreement and
applicable law as the General Partner, in its sole and absolute discretion,
believes to be advisable.
C. Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey
any property to the Partnership, directly or indirectly, except pursuant to
transactions that are determined by the General Partner in good faith to be
fair and reasonable.
D. The General Partner, in its sole and absolute discretion and
without the approval of the Limited Partners, may propose and adopt on
behalf of the Partnership employee benefit plans funded by the Partnership
for the benefit of employees of the General Partner, the Partnership,
Subsidiaries of the Partnership or any Affiliate of any of them in respect
of services performed, directly or indirectly, for the benefit of the
Partnership or any of the Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various Affiliates
of the Partnership and the General Partner, on such terms as the General
Partner, in its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification.
A. To the fullest extent permitted by applicable law, the Partnership
shall indemnify each Indemnitee from and against any and all losses,
claims, damages, liabilities, joint or several, expenses (including,
without limitation, attorney's fees and other legal fees and expenses),
judgments, fines, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, that relate to the operations of the
Partnership ("Actions")
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as set forth in this Agreement in which such Indemnitee may be involved, or
is threatened to be involved, as a party or otherwise; provided, however,
that the Partnership shall not indemnify an Indemnitee (i) for willful
misconduct or a knowing violation of the law or (ii) for any transaction
for which such Indemnitee received an improper personal benefit in
violation or breach of any provision of this Agreement. Without limitation,
the foregoing indemnity shall extend to any liability of any Indemnitee,
pursuant to a loan guaranty or otherwise, for any indebtedness of the
Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter
into one or more indemnity agreements consistent with the provisions of
this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. It is the intention of this Section
7.7.A that the Partnership indemnify each Indemnitee to the fullest extent
permitted by law. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the Indemnitee did not meet
the requisite standard of conduct set forth in this Section 7.7.A. The
termination of any proceeding by conviction of an Indemnitee or upon a plea
of nolo contendere or its equivalent by an Indemnitee, or an entry of an
order of probation against an Indemnitee prior to judgment, does not create
a presumption that such Indemnitee acted in a manner contrary to that
specified in this Section 7.7.A with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.7 shall be made
only out of the assets of the Partnership, and neither the General Partner
nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the
Partnership to fund its obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the
focus of or is involved in any Action shall be paid or reimbursed by the
Partnership as incurred by the Indemnitee in advance of the final
disposition of the Action upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met, and (ii) a written
undertaking by or on behalf of the Indemnitee to repay the amount if it
shall ultimately be determined that the standard of conduct has not been
met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of the Indemnitee unless
otherwise provided in a written agreement with such Indemnitee or in the
writing pursuant to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other
Persons as the General Partner shall determine, against any liability that
may be asserted against or expenses that may be incurred by such Person in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance
of an employee benefit plan or any related trust or funding mechanism
(whether such liabilities are in the form of excise taxes assessed by the
IRS, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary
of such plan, trust or other funding mechanism, or otherwise) shall be
treated as liabilities or judgments or fines under this Section 7.7, unless
such liabilities arise as a result of (i) such Indemnitee's intentional
misconduct or knowing violation of the law, or (ii) any transaction in
which such Indemnitee received a personal benefit in violation or breach of
any provision of this Agreement or applicable law.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in
this Agreement.
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G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
Any amendment, modification or repeal of this Section 7.7 or any provision
hereof shall be prospective only and shall not in any way affect the
limitations on the Partnership's liability to any Indemnitee under this
Section 7.7 as in effect immediately prior to such amendment, modification
or repeal with respect to claims arising from or relating to matters
occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
I. It is the intent of the Partners that any amounts paid by the
Partnership to the General Partner pursuant to this Section 7.7 shall be
treated as "guaranteed payments" within the meaning of Code Section 707(c).
Section 7.8 Liability of the General Partner.
A. Notwithstanding anything to the contrary set forth in this
Agreement, neither the General Partner nor any of its directors or officers
shall be liable or accountable in damages or otherwise to the Partnership,
any Partners or any Assignees for losses sustained, liabilities incurred or
benefits not derived as a result of errors in judgment or mistakes of fact
or law or of any act or omission if the General Partner or such director or
officer acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner
is acting for the benefit of the Partnership, the Limited Partners and the
General Partner's shareholders collectively and that the General Partner is
under no obligation to give priority to the separate interests of the
Limited Partners or the General Partner's shareholders (including, without
limitation, the tax consequences to Limited Partners, Assignees or the
General Partner's shareholders) in deciding whether to cause the
Partnership to take (or decline to take) any actions.
C. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon
it hereunder either directly or by or through its employees or agents
(subject to the supervision and control of the General Partner). The
General Partner shall not be responsible for any misconduct or negligence
on the part of any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section
7.8 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters
occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
E. Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express
indemnities given to the Partnership by any Partner pursuant to any other
written instrument, no Partner shall have any personal liability
whatsoever, to the Partnership or to the other Partner(s), for the debts or
liabilities of the Partnership or the Partnership's obligations hereunder,
and the full recourse of the other Partner(s) shall be limited to the
interest of that Partner in the Partnership. To the fullest extent
permitted by law, no officer, director or shareholder of the General
Partner shall be liable to the Partnership for money damages except for (i)
active and deliberate dishonesty established by a non-appealable final
judgment or (ii) actual receipt of an improper benefit or profit in money,
property or services. Without limitation of the foregoing, and except for
fraud, willful misconduct or gross negligence, or pursuant to any such
express indemnity, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other
judicial process) in favor of any other
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Partner(s) and arising out of, or in connection with, this Agreement. This
Agreement is executed by the officers of the General Partner solely as
officers of the same and not in their own individual capacities.
F. To the extent that, at law or in equity, the General Partner has
duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or the Limited Partners, the General Partner shall not be
liable to the Partnership or to any other Partner for its good faith
reliance on the provisions of this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of
the General Partner otherwise existing at law or in equity, are agreed by
the Partners to replace such other duties and liabilities of such General
Partner.
Section 7.9 Other Matters Concerning the General Partner.
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it in good faith to be
genuine and to have been signed or presented by the proper party or
parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects,
engineers, environmental consultants and other consultants and advisers
selected by it, and any act taken or omitted to be taken in reliance upon
the opinion of such Persons as to matters that the General Partner
reasonably believes to be within such Person's professional or expert
competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such
attorney shall, to the extent provided by the General Partner in the power
of attorney, have full power and authority to do and perform all and every
act and duty that is permitted or required to be done by the General
Partner hereunder.
D. Notwithstanding any other provision of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or
omission is necessary or advisable in order (i) to protect the ability of
the Previous General Partner to continue to qualify as a REIT, (ii) for the
Previous General Partner otherwise to satisfy the REIT Requirements, (iii)
to avoid the Previous General Partner incurring any taxes under Code
Section 857 or Code Section 4981 or (iv) for the General Partner or the
Special Limited Partner to continue to qualify as a "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)), is expressly
authorized under this Agreement and is deemed approved by all of the
Limited Partners.
Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively with other Partners or Persons, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without the consent or approval of any other Partner or Person, to encumber,
sell or otherwise
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use in any manner any and all assets of the Partnership and to enter into any
contracts on behalf of the Partnership, and take any and all actions on behalf
of the Partnership, and such Person shall be entitled to deal with the General
Partner as if it were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies that may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expediency of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement
(including, without limitation, Section 10.4 hereof) or under the Act.
Section 8.2 Management of Business. No Limited Partner or Assignee (other
than the General Partner, any of its Affiliates or any officer, director,
member, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such) shall take
part in the operations, management or control (within the meaning of the Act) of
the Partnership's business, transact any business in the Partnership's name or
have the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, member, employee, partner, agent, representative, or
trustee of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners. Subject to any
agreements entered into pursuant to Section 7.6.D hereof and any other
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary (including, without limitation, any
employment agreement), any Limited Partner and any Assignee, officer, director,
employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities that are in direct or indirect competition with the Partnership
or that are enhanced by the activities of the Partnership. Neither the
Partnership nor any Partners shall have any rights by virtue of this Agreement
in any business ventures of any Limited Partner or Assignee. Subject to such
agreements, none of the Limited Partners nor any other Person shall have any
rights by virtue of this Agreement or the partnership relationship established
hereby in any business ventures of any other Person (other than the General
Partner, to the extent expressly provided herein), and such Person shall have no
obligation pursuant to this Agreement, subject to Section 7.6.D hereof and any
other agreements entered into by a Limited Partner or its Affiliates with the
General Partner, the Partnership or a Subsidiary, to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character that, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital. Except pursuant to the rights of Redemption
set forth in Section 8.6 hereof, no Limited Partner shall be entitled to the
withdrawal or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided in Article 6
hereof or otherwise expressly provided in this
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Agreement, no Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee either as to the return of Capital Contributions or
as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner
shall have the right, for a purpose reasonably related to such Limited
Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at such Limited
Partner's own expense:
(1) to obtain a copy of (i) the most recent annual and quarterly
reports filed with the SEC by the Previous General Partner or the
General Partner pursuant to the Exchange Act and (ii) each report or
other written communication sent to the shareholders of the Previous
General Partner;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Fiscal Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or services
contributed by each Partner and that each Partner has agreed to
contribute in the future, and the date on which each became a Partner.
B. The Partnership shall notify any Limited Partner that is a
Qualifying Party, on request, of the then current Adjustment Factor or any
change made to the Adjustment Factor.
C. Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes is not in
the best interests of the Partnership or the General Partner or (ii) the
Partnership or the General Partner is required by law or by agreements with
unaffiliated third parties to keep confidential.
Section 8.6 Redemption Rights of Qualifying Parties.
A. After the first Twelve-Month Period, a Qualifying Party, but no
other Limited Partner or Assignee, shall have the right (subject to the
terms and conditions set forth herein) to require the Partnership to redeem
all or a portion of the Redeemable Units held by such Tendering Party (such
Redeemable Units being hereafter "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date.
Any Redemption shall be exercised pursuant to a Notice of Redemption
delivered to the General Partner by the Qualifying Party when exercising
the Redemption right (the "Tendering Party"). The Partnership's obligation
to effect a Redemption, however, shall not arise or be binding against the
Partnership (i) until and unless there has been a Declination and (ii)
before the Business Day following the Cut-Off Date. Regardless of the
binding or non-binding nature of a pending Redemption, a Tendering Party
shall have no right to receive distributions with respect to any Tendered
Units (other than the Cash Amount) paid after delivery of the Notice of
Redemption, whether or not the Partnership Record Date for such
distribution precedes or coincides with such delivery of the Notice of
Redemption. In the event of a Redemption, the Cash Amount shall be
delivered as a certified check payable to the Tendering Party or, in the
General Partner's sole and absolute discretion, in immediately available
funds.
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B. Notwithstanding the provisions of Section 8.6.A hereof, on or
before the close of business on the Cut-Off Date, the General Partner may,
in its sole and absolute discretion but subject to the Ownership Limit and
the transfer restrictions and other limitations of the Charter, elect to
cause the Previous General Partner to acquire some or all (such percentage
being referred to as the "Applicable Percentage") of the Tendered Units
from the Tendering Party in exchange for REIT Shares. In making such
election to cause the Previous General Partner to acquire Tendered Units,
the General Partner shall act in a fair, equitable and reasonable manner
that neither prefers one group or class of Qualifying Parties over another
nor discriminates against a group or class of Qualifying Parties. If the
General Partner so elects, on the Specified Redemption Date the Tendering
Party shall sell such number of the Tendered Units to the Previous General
Partner in exchange for a number of REIT Shares equal to the product of the
REIT Shares Amount and the Applicable Percentage. The Tendering Party shall
submit (i) such information, certification or affidavit as the Previous
General Partner may reasonably require in connection with the application
of the Ownership Limit and other restrictions and limitations of the
Charter to any such acquisition and (ii) such written representations,
investment letters, legal opinions or other instruments necessary, in the
Previous General Partner's view, to effect compliance with the Securities
Act. In the event of a purchase of the Tendered Units by the Previous
General Partner pursuant to this Section 8.6.B, the Tendering Party shall
no longer have the right to cause the Partnership to effect a Redemption of
such Tendered Units, and, upon notice to the Tendering Party by the General
Partner or the Previous General Partner, given on or before the close of
business on the Cut-Off Date, that the Previous General Partner has elected
to acquire some or all of the Tendered Units pursuant to this Section
8.6.B, the obligation of the Partnership to effect a Redemption of the
Tendered Units as to which the General Partner's notice relates shall not
accrue or arise. The product of the Applicable Percentage and the REIT
Shares Amount, if applicable, shall be delivered by the Previous General
Partner as duly authorized, validly issued, fully paid and accessible REIT
Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or
restriction, other than the Ownership Limit and other restrictions provided
in the Charter, the Bylaws of the Previous General Partner, the Securities
Act and relevant state securities or "blue sky" laws. Neither any Tendering
Party whose Tendered Units are acquired by the Previous General Partner
pursuant to this Section 8.6.B, any Partner, any Assignee nor any other
interested Person shall have any right to require or cause the Previous
General Partner or the General Partner to register, qualify or list any
REIT Shares owned or held by such Person, whether or not such REIT Shares
are issued pursuant to this Section 8.6.B, with the SEC, with any state
securities commissioner, department or agency, under the Securities Act or
the Exchange Act or with any stock exchange; provided, however, that this
limitation shall not be in derogation of any registration or similar rights
granted pursuant to any other written agreement between the Previous
General Partner and any such Person. Notwithstanding any delay in such
delivery, the Tendering Party shall be deemed the owner of such REIT Shares
and Rights for all purposes, including, without limitation, rights to vote
or consent, receive dividends, and exercise rights, as of the Specified
Redemption Date. REIT Shares issued upon an acquisition of the Tendered
Units by the Previous General Partner pursuant to this Section 8.6.B may
contain such legends regarding restrictions under the Securities Act and
applicable state securities laws as the Previous General Partner in good
faith determines to be necessary or advisable in order to ensure compliance
with such laws.
C. Notwithstanding the provisions of Section 8.6.A and 8.6.B hereof,
the Tendering Parties (i) where the Redemption would consist of less than
all the Partnership Common Units held by Partners other than the General
Partner and the Special Limited Partner, shall not be entitled to elect or
effect a Redemption to the extent that the aggregate Percentage Interests
of the Limited Partners (other than the Special Limited Partner) would be
reduced, as a result of the Redemption (or the acquisition of the Tendered
Units by the Previous General Partner pursuant to Section 8.6.B hereof), to
less than one percent (1%) and (ii) shall have no rights under this
Agreement that would otherwise be prohibited under the Charter. To the
extent that any attempted Redemption or acquisition of the Tendered Units
by the Previous General Partner pursuant to Section 8.6.B hereof would be
in violation of this Section 8.6.C, it shall be null and void ab initio,
and the Tendering Party shall not acquire any rights or economic interests
in REIT Shares otherwise issuable by the Previous General Partner under
Section 8.6.B hereof.
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D. In the event that the Previous General Partner declines or fails to
exercise its purchase rights pursuant to Section 8.6.B hereof following
receipt of a Notice of Redemption (a "Declination"):
(1) The Previous General Partner or the General Partner shall give
notice of such Declination to the Tendering Party on or before the close
of business on the Cut-Off Date. The failure of both the Previous
General Partner and the General Partner to give notice of such
Declination by the close of business on the Cut-Off Date shall itself
constitute a Declination.
(2) The Partnership may elect to raise funds for the payment of the
Cash Amount either (a) by requiring that the General Partner contribute
such funds from the proceeds of a registered public offering (a "Public
Offering Funding") by the Previous General Partner of a number of REIT
Shares ("Registrable Shares") equal to the REIT Shares Amount with
respect to the Tendered Units or (b) from any other sources (including,
but not limited to, the sale of any Property and the incurrence of
additional Debt) available to the Partnership.
(3) Promptly upon the General Partner's receipt of the Notice of
Redemption and the Previous General Partner or the General Partner
giving notice of the Previous General Partner's Declination, the General
Partner shall give notice (a "Single Funding Notice") to all Qualifying
Parties then holding a Partnership Interest (or an interest therein) and
having Redemption rights pursuant to this Section 8.6 and require that
all such Qualifying Parties elect whether or not to effect a Redemption
of their Partnership Common Units to be funded through such Public
Offering Funding. In the event that any such Qualifying Party elects to
effect such a Redemption, it shall give notice thereof and of the number
of Partnership Common Units to be made subject thereon in writing to the
General Partner within ten (10) Business Days after receipt of the
Single Funding Notice, and such Qualifying Party shall be treated as a
Tendering Party for all purposes of this Section 8.6. In the event that
a Qualifying Party does not so elect, it shall be deemed to have waived
its right to effect a Redemption for the current Twelve-Month Period;
provided, however, that the Previous General Partner shall not be
required to acquire Partnership Common Units pursuant to this Section
8.6.D more than twice within a Twelve-Month Period.
Any proceeds from a Public Offering Funding that are in excess of the Cash
Amount shall be for the sole benefit of the Previous General Partner and/or
the General Partner. The General Partner and/or the Special Limited Partner
shall make a Capital Contribution of such amounts to the Partnership for an
additional General Partner Interest and/or Limited Partner Interest. Any
such contribution shall entitle the General Partner and the Special Limited
Partner, as the case may be, to an equitable Percentage Interest
adjustment.
E. Notwithstanding the provisions of Section 8.6.B hereof, the
Previous General Partner shall not, under any circumstances, elect to
acquire Tendered Units in exchange for the REIT Shares Amount if such
exchange would be prohibited under the Charter.
F. Notwithstanding anything herein to the contrary (but subject to
Section 8.6.C hereof), with respect to any Redemption (or any tender of
Redeemable Units for Redemption if the Tendered Units are acquired by the
Previous General Partner pursuant to Section 8.6.B hereof) pursuant to this
Section 8.6:
(1) All Partnership Common Units acquired by the Previous General
Partner pursuant to Section 8.6.B hereof shall be contributed by the
Previous General Partner to either or both of the General Partner and
the Special Limited Partner in such proportions as the Previous General
Partner, the General Partner and the Special Limited Partner shall
determine. Any Partnership Common Units so contributed to the General
Partner shall automatically, and without further action required, be
converted into and deemed to be a General Partner Interest comprised of
the same number of Partnership Common Units. Any Partnership Common
Units so contributed to the Special Limited Partner shall remain
outstanding.
(2) Subject to the Ownership Limit, no Tendering Party may effect a
Redemption for less than five hundred (500) Redeemable Units or, if such
Tendering Party holds (as a Limited Partner or,
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economically, as an Assignee) less than five hundred (500) Redeemable
Units, all of the Redeemable Units held by such Tendering Party.
(3) Each Tendering Party (a) may effect a Redemption only once in
each fiscal quarter of a Twelve-Month Period and (b) may not effect a
Redemption during the period after the Partnership Record Date with
respect to a distribution and before the record date established by the
Previous General Partner for a distribution to its shareholders of some
or all of its portion of such Partnership distribution.
(4) Notwithstanding anything herein to the contrary, with respect
to any Redemption or acquisition of Tendered Units by the Previous
General Partner pursuant to Section 8.6.B hereof, in the event that the
Previous General Partner or the General Partner gives notice to all
Limited Partners (but excluding any Assignees) then owning Partnership
Interests (a "Primary Offering Notice") that the Previous General
Partner desires to effect a primary offering of its equity securities
then, unless the Previous General Partner and the General Partner
otherwise consent, commencement of the actions denoted in Section 8.6.E
hereof as to a Public Offering Funding with respect to any Notice of
Redemption thereafter received, whether or not the Tendering Party is a
Limited Partner, may be delayed until the earlier of (a) the completion
of the primary offering or (b) ninety (90) days following the giving of
the Primary Offering Notice.
(5) Without the Consent of the Previous General Partner, no
Tendering Party may effect a Redemption within ninety (90) days
following the closing of any prior Public Offering Funding.
(6) The consummation of such Redemption (or an acquisition of
Tendered Units by the Previous General Partner pursuant to Section 8.6.B
hereof, as the case may be) shall be subject to the expiration or
termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(7) The Tendering Party shall continue to own (subject, in the case
of an Assignee, to the provision of Section 11.5 hereof) all Redeemable
Units subject to any Redemption, and be treated as a Limited Partner or
an Assignee, as applicable, with respect to such Redeemable Units for
all purposes of this Agreement, until such Redeemable Units are either
paid for by the Partnership pursuant to Section 8.6.A hereof or
transferred to the Previous General Partner (or directly to the General
Partner or Special Limited Partner) and paid for, by the issuance of the
REIT Shares, pursuant to Section 8.6.B hereof on the Specified
Redemption Date. Until a Specified Redemption Date and an acquisition of
the Tendered Units by the Previous General Partner pursuant to Section
8.6.B hereof, the Tendering Party shall have no rights as a shareholder
of the Previous General Partner with respect to the REIT Shares issuable
in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in
this Section 8.6.F, all Partnership Common Units beneficially owned by a
Related Party of a Tendering Party shall be considered to be owned or held
by such Tendering Party.
G. In connection with an exercise of Redemption rights pursuant to
this Section 8.6, the Tendering Party shall submit the following to the
General Partner, in addition to the Notice of Redemption:
(1) A written affidavit, dated the same date as the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as
determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT
Shares by (i) such Tendering Party and (ii) any Related Party and (b)
representing that, after giving effect to the Redemption or an
acquisition of the Tendered Units by the Previous General Partner
pursuant to Section 8.6.B hereof, neither the Tendering Party nor any
Related Party will own REIT Shares in excess of the Ownership Limit;
(2) A written representation that neither the Tendering Party nor
any Related Party has any intention to acquire any additional REIT
Shares prior to the closing of the Redemption or an acquisition of the
Tendered Units by the Previous General Partner pursuant to Section 8.6.B
hereof on the Specified Redemption Date; and
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(3) An undertaking to certify, at and as a condition to the closing
of (i) the Redemption or (ii) the acquisition of the Tendered Units by
the Previous General Partner pursuant to Section 8.6.B hereof on the
Specified Redemption Date, that either (a) the actual and constructive
ownership of REIT Shares by the Tendering Party and any Related Party
remain unchanged from that disclosed in the affidavit required by
Section 8.6.G(1) or (b) after giving effect to the Redemption or an
acquisition of the Tendered Units by the Previous General Partner
pursuant to Section 8.6.B hereof, neither the Tendering Party nor any
Related Party shall own REIT Shares in violation of the Ownership Limit.
Section 8.7 Partnership Right to Call Limited Partner
Interests. Notwithstanding any other provision of this Agreement, on and after
the date on which the aggregate Percentage Interests of the Limited Partners
(other than the Special Limited Partner) are less than one percent (1%), the
Partnership shall have the right, but not the obligation, from time to time and
at any time to redeem any and all outstanding Limited Partner Interests (other
than the Special Limited Partner's Limited Partner Interest) by treating any
Limited Partner as a Tendering Party who has delivered a Notice of Redemption
pursuant to Section 8.6 hereof for the amount of Partnership Common Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 8.7. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 8.7 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 8.7, (a) any Limited Partner (whether or not otherwise
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 8.6.C(1), 8.6.F(2), 8.6.F(3) and 8.6.F(5) hereof shall
not apply, but the remainder of Section 8.6 hereof shall apply, mutatis
mutandis.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
A. The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be
maintained by the Act and other books and records deemed by the General
Partner to be appropriate with respect to the Partnership's business,
including, without limitation, all books and records necessary to provide
to the Limited Partners any information, lists and copies of documents
required to be provided pursuant to Section 8.5.A or Section 9.3 hereof.
Any records maintained by or on behalf of the Partnership in the regular
course of its business may be kept on, or be in the form for, punch cards,
magnetic tape, photographs, micrographics or any other information storage
device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time.
B. The books of the Partnership shall be maintained, for financial and
tax reporting purposes, on an accrual basis in accordance with generally
accepted accounting principles, or on such other basis as the General
Partner determines to be necessary or appropriate. To the extent permitted
by sound accounting practices and principles, the Partnership, the General
Partner and the Previous General Partner may operate with integrated or
consolidated accounting records, operations and principles.
Section 9.2 Fiscal Year. The Fiscal Year of the Partnership shall be the
calendar year.
Section 9.3 Reports.
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Fiscal Year, the General Partner shall
cause to be mailed to each Limited Partner, of record as of the close of
the Fiscal Year, an annual report containing financial statements of the
Partnership, or of the Previous General Partner if such statements are
prepared solely on a consolidated basis with the Previous General Partner,
for such Fiscal Year, presented in accordance with generally accepted
accounting
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principles, such statements to be audited by a nationally recognized firm
of independent public accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be
mailed to each Limited Partner, of record as of the last day of the
calendar quarter, a report containing unaudited financial statements of the
Partnership, or of the Previous General Partner if such statements are
prepared solely on a consolidated basis with the Previous General Partner,
and such other information as may be required by applicable law or
regulation or as the General Partner determines to be appropriate. At the
request of any Limited Partner, the General Partner shall provide access to
the books, records and workpapers upon which the reports required by this
Section 9.3 are based, to the extent required by the Act.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall arrange
for the preparation and timely filing of all returns with respect to Partnership
income, gains, deductions, losses and other items required of the Partnership
for federal and state income tax purposes and shall use all reasonable effort to
furnish, within ninety (90) days of the close of each taxable year, the tax
information reasonably required by Limited Partners for federal and state income
tax reporting purposes. The Limited Partners shall promptly provide the General
Partner with such information relating to the Contributed Properties, including
tax basis and other relevant information, as may be reasonably requested by the
General Partner from time to time.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code, including, but not limited to,
the election under Code Section 754 and the election to use the "recurring item"
method of accounting provided under Code Section 461(h) with respect to property
taxes imposed on the Partnership's Properties; provided, however, that, if the
"recurring item" method of accounting is elected with respect to such property
taxes, the Partnership shall pay the applicable property taxes prior to the date
provided in Code Section 461(h) for purposes of determining economic
performance. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, any election under Code Sections 461(h)
and 754) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. The tax matters partner shall
receive no compensation for its services. All third-party costs and
expenses incurred by the tax matters partner in performing its duties as
such (including legal and accounting fees and expenses) shall be borne by
the Partnership in addition to any reimbursement pursuant to Section 7.4
hereof. Nothing herein shall be construed to restrict the Partnership from
engaging an accounting firm to assist the tax matters partner in
discharging its duties hereunder, so long as the compensation paid by the
Partnership for such services is reasonable. At the request of any Limited
Partner, the General Partner agrees to consult with such Limited Partner
with respect to the preparation and filing of any returns and with respect
to any subsequent audit or litigation relating to such returns; provided,
however, that the filing of such returns shall be in the sole and absolute
discretion of the General Partner.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax
purposes (such administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax
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matters partner may expressly state that such agreement shall bind all
Partners, except that such settlement agreement shall not bind any
Partner (i) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax
matters partner shall not have the authority to enter into a settlement
agreement on behalf of such Partner or (ii) who is a "notice partner"
(as defined in Code Section 6231) or a member of a "notice group" (as
defined in Code Section 6223(b)(2));
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account
by a Partner for tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the United
States Tax Court or the United States Claims Court, or the filing of a
complaint for refund with the District Court of the United States for
the district in which the Partnership's principal place of business is
located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
at any time and, if any part of such request is not allowed by the IRS,
to file an appropriate pleading (petition or complaint) for judicial
review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period
for assessing any tax that is attributable to any item required to be
taken into account by a Partner for tax purposes, or an item affected by
such item; and
(6) to take any other action on behalf of the Partners in
connection with any tax audit or judicial review proceeding to the
extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of
the tax matters partner and the provisions relating to indemnification of
the General Partner set forth in Section 7.7 hereof shall be fully
applicable to the tax matters partner in its capacity as such.
Section 10.4 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Code Section 1441, Code
Section 1442, Code Section 1445 or Code Section 1446. Any amount paid on behalf
of or with respect to a Limited Partner shall constitute a loan by the
Partnership to such Limited Partner, which loan shall be repaid by such Limited
Partner within fifteen (15) days after notice from the General Partner that such
payment must be made unless (i) the Partnership withholds such payment from a
distribution that would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the Available Funds of the Partnership that
would, but for such payment, be distributed to the Limited Partner. Each Limited
Partner hereby unconditionally and irrevocably grants to the Partnership a
security interest in such Limited Partner's Partnership Interest to secure such
Limited Partner's obligation to pay to the Partnership any amounts required to
be paid pursuant to this Section 10.4. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 10.4 when
due, the General Partner may, in its sole and absolute discretion, elect to make
the payment to the Partnership on behalf of such defaulting Limited Partner, and
in such event shall be deemed to have loaned such amount to such defaulting
Limited Partner and shall succeed to all rights and remedies of the Partnership
as against such defaulting Limited Partner (including, without limitation, the
right to receive distributions). Any amounts payable by a Limited Partner
hereunder shall bear interest at the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
the Wall Street Journal, plus four (4) percentage points (but not higher than
the maximum lawful rate) from the date such amount is due (i.e., fifteen (15)
days after demand) until such amount is paid in full. Each Limited
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Partner shall take such actions as the Partnership or the General Partner shall
request in order to perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
A. No part of the interest of a Partner shall be subject to the claims
of any creditor, to any spouse for alimony or support, or to legal process,
and may not be voluntarily or involuntarily alienated or encumbered except
as may be specifically provided for in this Agreement.
B. No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this
Article 11. Any Transfer or purported Transfer of a Partnership Interest
not made in accordance with this Article 11 shall be null and void ab
initio.
C. Notwithstanding the other provisions of this Article 11 (other than
Section 11.6.D hereof), the Partnership Interests of the General Partner
and the Special Limited Partner may be Transferred, in whole or in part, at
any time or from time to time, to or among the Previous General Partner,
the General Partner, the Special Limited Partner, and any other Person that
is, at the time of such Transfer, a "qualified REIT subsidiary" (within the
meaning of Code Section 856(i)(2)) with respect to the Previous General
Partner. Any transferee of the entire General Partner Interest pursuant to
this Section 11.1.C shall automatically become, without further action or
Consent of any Limited Partners, the sole general partner of the
Partnership, subject to all the rights, privileges, duties and obligations
under this Agreement and the Act relating to a general partner. Any
transferee of a Limited Partner Interest pursuant to this Section 11.1.C
shall automatically become, without further action or Consent of any
Limited Partners, a Substituted Limited Partner. Upon any Transfer
permitted by this Section 11.1.C, the transferor Partner shall be relieved
of all its obligations under this Agreement. The provisions of Section
11.2.B (other than the last sentence thereof), 11.3, 11.4.A and 11.5 hereof
shall not apply to any Transfer permitted by this Section 11.1.C.
Section 11.2 Transfer of General Partner's Partnership Interest.
A. The General Partner may not Transfer any of its General Partner
Interest or withdraw from the Partnership except as provided in Sections
11.2.B and 11.2.C hereof.
B. The General Partner shall not withdraw from the Partnership and
shall not Transfer all or any portion of its interest in the Partnership
(whether by sale, disposition, statutory merger or consolidation,
liquidation or otherwise) without the Consent of the Limited Partners,
which Consent may be given or withheld in the sole and absolute discretion
of the Limited Partners. Upon any Transfer of such a Partnership Interest
pursuant to the Consent of the Limited Partners and otherwise in accordance
with the provisions of this Section 11.2.B, the transferee shall become a
successor General Partner for all purposes herein, and shall be vested with
the powers and rights of the transferor General Partner, and shall be
liable for all obligations and responsible for all duties of the General
Partner, once such transferee has executed such instruments as may be
necessary to effectuate such admission and to confirm the agreement of such
transferee to be bound by all the terms and provisions of this Agreement
with respect to the Partnership Interest so acquired. It is a condition to
any Transfer otherwise permitted hereunder that the transferee assumes, by
operation of law or express agreement, all of the obligations of the
transferor General Partner under this Agreement with respect to such
Transferred Partnership Interest, and such Transfer shall relieve the
transferor General Partner of its obligations under this Agreement without
the Consent of the Limited Partners. In the event that the General Partner
withdraws from the Partnership, in violation of this Agreement or
otherwise, or otherwise dissolves or terminates, or upon the bankruptcy of
the General Partner, a Majority in Interest of the Limited Partners may
elect to continue the Partnership business by selecting a successor General
Partner in accordance with the Act.
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C. The General Partner may merge with another entity if immediately
after such merger substantially all of the assets of the surviving entity,
other than the General Partner Interest held by the General Partner, are
contributed to the Partnership as a Capital Contribution in exchange for
Partnership Units.
Section 11.3 Limited Partners' Rights to Transfer.
A. General. Prior to the end of the first Twelve-Month Period, no
Limited Partner shall Transfer all or any portion of its Partnership
Interest to any transferee without the Consent of the General Partner,
which Consent may be withheld in its sole and absolute discretion;
provided, however, that any Limited Partner may, at any time, without the
consent of the General Partner, (i) Transfer all or part of its Partnership
Interest to any Designated Party, any Family Member, any Controlled Entity
or any Affiliate, provided that the transferee is, in any such case, a
Qualified Transferee, or (ii) pledge (a "Pledge") all or any portion of its
Partnership Interest to a lending institution, that is not an Affiliate of
such Limited Partner, as collateral or security for a bona fide loan or
other extension of credit, and Transfer such pledged Partnership Interest
to such lending institution in connection with the exercise of remedies
under such loan or extension or credit (any Transfer or Pledge permitted by
this proviso is hereinafter referred to as a "Permitted Transfer"). After
such first Twelve-Month Period, each Limited Partner, and each transferee
of Partnership Units or Assignee pursuant to a Permitted Transfer, shall
have the right to Transfer all or any portion of its Partnership Interest
to any Person, subject to the provisions of Section 11.6 hereof and to
satisfaction of each of the following conditions:
(1) General Partner Right of First Refusal. The transferring
Partner shall give written notice of the proposed Transfer to the
General Partner, which notice shall state (i) the identity of the
proposed transferee and (ii) the amount and type of consideration
proposed to be received for the Transferred Partnership Units. The
General Partner shall have ten (10) Business Days upon which to give the
Transferring Partner notice of its election to acquire the Partnership
Units on the proposed terms. If it so elects, it shall purchase the
Partnership Units on such terms within ten (10) Business Days after
giving notice of such election; provided, however, that in the event
that the proposed terms involve a purchase for cash, the General Partner
may at its election deliver in lieu of all or any portion of such cash a
note payable to the Transferring Partner at a date as soon as reasonably
practicable, but in no event later than one hundred eighty (180) days
after such purchase, and bearing interest at an annual rate equal to the
total dividends declared with respect to one (1) REIT Share for the four
(4) preceding fiscal quarters of the General Partner, divided by the
Value as of the closing of such purchase; provided, further, that such
closing may be deferred to the extent necessary to effect compliance
with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
applicable, and any other applicable requirements of law. If it does not
so elect, the Transferring Partner may Transfer such Partnership Units
to a third party, on terms no more favorable to the transferee than the
proposed terms, subject to the other conditions of this Section 11.3.
(2) Qualified Transferee. Any Transfer of a Partnership Interest
shall be made only to a single Qualified Transferee; provided, however,
that, for such purposes, all Qualified Transferees that are Affiliates,
or that comprise investment accounts or funds managed by a single
Qualified Transferee and its Affiliates, shall be considered together to
be a single Qualified Transferee; provided, further, that each Transfer
meeting the minimum Transfer restriction of Section 11.3.A(3) hereof may
be to a separate Qualified Transferee.
(3) Minimum Transfer Restriction. Any Transferring Partner must
Transfer not less than the lesser of (i) the greater of five hundred
(500) Partnership Units or one-third ( 1/3) of the number of Partnership
Units owned by such Partner as of the Effective Date or (ii) all of the
remaining Partnership Units owned by such Transferring Partner;
provided, however, that, for purposes of determining compliance with the
foregoing restriction, all Partnership Units owned by Affiliates of a
Limited Partner shall be considered to be owned by such Limited Partner.
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(4) Transferee Agreement to Effect a Redemption. Any proposed
transferee shall deliver to the General Partner a written agreement
reasonably satisfactory to the General Partner to the effect that the
transferee will, within six (6) months after consummation of a
Partnership Common Units Transfer, tender its Partnership Common Units
for Redemption in accordance with the terms of the Redemption rights
provided in Section 8.6 hereof.
(5) No Further Transfers. The transferee (other than a Designated
Party) shall not be permitted to effect any further Transfer of the
Partnership Units, other than to the General Partner.
(6) Exception for Permitted Transfers. The conditions of Sections
11.3.A(1) through 11.3.A(5) hereof shall not apply in the case of a
Permitted Transfer.
It is a condition to any Transfer otherwise permitted hereunder (whether or
not such Transfer is effected during or after the first Twelve-Month
Period) that the transferee assumes by operation of law or express
agreement all of the obligations of the transferor Limited Partner under
this Agreement with respect to such Transferred Partnership Interest, and
no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor Partner of its obligations under this Agreement
without the approval of the General Partner, in its sole and absolute
discretion. Notwithstanding the foregoing, any transferee of any
Transferred Partnership Interest shall be subject to any and all ownership
limitations (including, without limitation, the Ownership Limit) contained
in the Charter that may limit or restrict such transferee's ability to
exercise its Redemption rights, including, without limitation, the
Ownership Limit. Any transferee, whether or not admitted as a Substituted
Limited Partner, shall take subject to the obligations of the transferor
hereunder. Unless admitted as a Substituted Limited Partner, no transferee,
whether by a voluntary Transfer, by operation of law or otherwise, shall
have any rights hereunder, other than the rights of an Assignee as provided
in Section 11.5 hereof.
B. Incapacity. If a Limited Partner is subject to Incapacity, the
executor, administrator, trustee, committee, guardian, conservator or
receiver of such Limited Partner's estate shall have all the rights of a
Limited Partner, but not more rights than those enjoyed by other Limited
Partners, for the purpose of settling or managing the estate, and such
power as the Incapacitated Limited Partner possessed to Transfer all or any
part of its interest in the Partnership. The Incapacity of a Limited
Partner, in and of itself, shall not dissolve or terminate the Partnership.
C. Opinion of Counsel. In connection with any Transfer of a Limited
Partner Interest, the General Partner shall have the right to receive an
opinion of counsel reasonably satisfactory to it to the effect that the
proposed Transfer may be effected without registration under the Securities
Act and will not otherwise violate any federal or state securities laws or
regulations applicable to the Partnership or the Partnership Interests
Transferred. If, in the opinion of such counsel, such Transfer would
require the filing of a registration statement under the Securities Act or
would otherwise violate any federal or state securities laws or regulations
applicable to the Partnership or the Partnership Units, the General Partner
may prohibit any Transfer otherwise permitted under this Section 11.3 by a
Limited Partner of Partnership Interests.
D. Adverse Tax Consequences. No Transfer by a Limited Partner of its
Partnership Interests (including any Redemption, any other acquisition of
Partnership Units by the General Partner or any acquisition of Partnership
Units by the Partnership) may be made to any person if (i) in the opinion
of legal counsel for the Partnership, it would result in the Partnership
being treated as an association taxable as a corporation, or (ii) such
Transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the
meaning of Code Section 7704.
Section 11.4 Substituted Limited Partners.
A. No Limited Partner shall have the right to substitute a transferee
(including any Designated Party or other transferees pursuant to Transfers
permitted by Section 11.3 hereof) as a Limited Partner in its place. A
transferee (including, but not limited to, any Designated Party) of the
interest of a Limited
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Partner may be admitted as a Substituted Limited Partner only with the
Consent of the General Partner, which Consent may be given or withheld by
the General Partner in its sole and absolute discretion. The failure or
refusal by the General Partner to permit a transferee of any such interests
to become a Substituted Limited Partner shall not give rise to any cause of
action against the Partnership or the General Partner. Subject to the
foregoing, an Assignee shall not be admitted as a Substituted Limited
Partner until and unless it furnishes to the General Partner (i) evidence
of acceptance, in form and substance satisfactory to the General Partner,
of all the terms, conditions and applicable obligations of this Agreement,
(ii) a counterpart signature page to this Agreement executed by such
Assignee and (iii) such other documents and instruments as may be required
or advisable, in the sole and absolute discretion of the General Partner,
to effect such Assignee's admission as a Substituted Limited Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and
be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address and number of
Partnership Units of such Substituted Limited Partner and to eliminate or
adjust, if necessary, the name, address and number of Partnership Units of
the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees. If the General Partner, in its sole and absolute
discretion, does not consent to the admission of any permitted transferee under
Section 11.3 hereof as a Substituted Limited Partner, as described in Section
11.4 hereof, such transferee shall be considered an Assignee for purposes of
this Agreement. An Assignee shall be entitled to all the rights of an assignee
of a limited partnership interest under the Act, including the right to receive
distributions from the Partnership and the share of Net Income, Net Losses and
other items of income, gain, loss, deduction and credit of the Partnership
attributable to the Partnership Units assigned to such transferee and the rights
to Transfer the Partnership Units provided in this Article 11, but shall not be
deemed to be a holder of Partnership Units for any other purpose under this
Agreement (other than as expressly provided in Section 8.6 hereof with respect
to a Qualifying Party that becomes a Tendering Party), and shall not be entitled
to effect a Consent or vote with respect to such Partnership Units on any matter
presented to the Limited Partners for approval (such right to Consent or vote,
to the extent provided in this Agreement or under the Act, fully remaining with
the transferor Limited Partner). In the event that any such transferee desires
to make a further assignment of any such Partnership Units, such transferee
shall be subject to all the provisions of this Article 11 to the same extent and
in the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.
Section 11.6 General Provisions.
A. No Limited Partner may withdraw from the Partnership other than as
a result of a permitted Transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11, with respect to which
the transferee becomes a Substituted Limited Partner, or pursuant to a
redemption (or acquisition by the Previous General Partner) of all of its
Partnership Units pursuant to a Redemption under Section 8.6 hereof and/or
pursuant to any Partnership Unit Designation.
B. Any Limited Partner who shall Transfer all of its Partnership Units
in a Transfer (i) permitted pursuant to this Article 11 where such
transferee was admitted as a Substituted Limited Partner, (ii) pursuant to
the exercise of its rights to effect a redemption of all of its Partnership
Units pursuant to a Redemption under Section 8.6 hereof and/or pursuant to
any Partnership Unit Designation or (iii) to the Previous General Partner
or the General Partner, whether or not pursuant to Section 8.6.B hereof,
shall cease to be a Limited Partner.
C. If any Partnership Unit is Transferred in compliance with the
provisions of this Article 11, or is redeemed by the Partnership, or
acquired by the Previous General Partner pursuant to Section 8.6 hereof, on
any day other than the first day of a Fiscal Year, then Net Income, Net
Losses, each item thereof and all other items of income, gain, loss,
deduction and credit attributable to such Partnership Unit for such Fiscal
Year shall be allocated to the transferor Partner or the Tendering Party,
as the case may be, and, in
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the case of a Transfer or assignment other than a Redemption, to the
transferee Partner (including, without limitation, the General Partner and
the Special Limited Partner as transferees of the Previous General Partner
in the case of an acquisition of Partnership Common Units pursuant to
Section 8.6 hereof), by taking into account their varying interests during
the Fiscal Year in accordance with Code Section 706(d), using the "interim
closing of the books" method or another permissible method selected by the
General Partner. Solely for purposes of making such allocations, each of
such items for the calendar month in which a Transfer occurs shall be
allocated to the transferee Partner and none of such items for the calendar
month in which a Transfer or a Redemption occurs shall be allocated to the
transferor Partner or the Tendering Party, as the case may be, if such
Transfer occurs on or before the fifteenth (15th) day of the month,
otherwise such items shall be allocated to the transferor. All
distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
Transfer, assignment or Redemption shall be made to the transferor Partner
or the Tendering Party, as the case may be, and, in the case of a Transfer
other than a Redemption, all distributions of Available Cash thereafter
attributable to such Partnership Unit shall be made to the transferee
Partner.
D. In addition to any other restrictions on Transfer herein contained,
in no event may any Transfer or assignment of a Partnership Interest by any
Partner (including any Redemption, any acquisition of Partnership Units by
the Previous General Partner or any other acquisition of Partnership Units
by the Partnership) be made (i) to any person or entity who lacks the legal
right, power or capacity to own a Partnership Interest; (ii) in violation
of applicable law; (iii) of any component portion of a Partnership
Interest, such as the Capital Account, or rights to distributions, separate
and apart from all other components of a Partnership Interest; (iv) in the
event that such Transfer would cause either (a) the Previous General
Partner to cease to comply with the REIT Requirements or (b) the General
Partner or the Special Limited Partner to cease to qualify as a "qualified
REIT subsidiary" (within the meaning of Code Section 856(i)(2); (v) if such
Transfer would, in the opinion of counsel to the Partnership or the General
Partner, cause a termination of the Partnership for federal or state income
tax purposes (except as a result of the Redemption (or acquisition by the
Previous General Partner) of all Partnership Common Units held by all
Limited Partners other than the Special Limited Partner); (vi) if such
Transfer would, in the opinion of legal counsel to the Partnership, cause
the Partnership to cease to be classified as a partnership for federal
income tax purposes (except as a result of the Redemption (or acquisition
by the Previous General Partner) of all Partnership Common Units held by
all Limited Partners other than the Special Limited Partner); (vii) if such
Transfer would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest"
(as defined in ERISA Section 3(14)) or a "disqualified person" (as defined
in Code Section 4975(c)); (viii) if such Transfer would, in the opinion of
legal counsel to the Partnership, cause any portion of the assets of the
Partnership to constitute assets of any employee benefit plan pursuant to
Department of Labor Regulations Section 2510.2-101; (ix) if such Transfer
requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws; (x) if such Transfer causes
the Partnership to become a "publicly traded partnership," as such term is
defined in Code Section 469(k)(2) or Code 7704(b); (xi) if such Transfer
would cause the Partnership to have more than five hundred (500) partners
(including as partners those persons indirectly owning an interest in the
Partnership through a partnership, limited liability company, subchapter S
corporation or grantor trust); (xii) if such Transfer causes the
Partnership (as opposed to the Previous General Partner or the General
Partner) to become a reporting company under the Exchange Act; or (xiii) if
such Transfer subjects the Partnership to regulation under the Investment
Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as
amended.
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ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all of
the General Partner's General Partner Interest pursuant to Section 11.2 hereof
who is proposed to be admitted as a successor General Partner shall be admitted
to the Partnership as the General Partner, effective immediately prior to such
Transfer. Any such successor shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners.
A. After the admission to the Partnership of an Original Limited
Partner on the date hereof, a Person (other than an existing Partner) who
makes a Capital Contribution to the Partnership in accordance with this
Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of
acceptance, in form and substance satisfactory to the General Partner, of
all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 hereof, (ii) a
counterpart signature page to this Agreement executed by such Person and
(iii) such other documents or instruments as may be required in the sole
and absolute discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the
consent of the General Partner, which consent may be given or withheld in
the General Partner's sole and absolute discretion. The admission of any
Person as an Additional Limited Partner shall become effective on the date
upon which the name of such Person is recorded on the books and records of
the Partnership, following the consent of the General Partner to such
admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Fiscal Year, then Net Income, Net
Losses, each item thereof and all other items of income, gain, loss,
deduction and credit allocable among Partners and Assignees for such Fiscal
Year shall be allocated among such Additional Limited Partner and all other
Partners and Assignees by taking into account their varying interests
during the Fiscal Year in accordance with Code Section 706(d), using the
"interim closing of the books" method or another permissible method
selected by the General Partner. Solely for purposes of making such
allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among
all the Partners and Assignees including such Additional Limited Partner,
in accordance with the principles described in Section 11.6.C hereof. All
distributions of Available Cash with respect to which the Partnership
Record Date is before the date of such admission shall be made solely to
Partners and Assignees other than the Additional Limited Partner, and all
distributions of Available Cash thereafter shall be made to all the
Partners and Assignees including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership. For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
Section 12.4 Admission of Initial Limited Partners. The Persons listed on
Exhibit A as limited partners of the Partnership shall be admitted to the
Partnership as Limited Partners upon their execution and delivery of this
Agreement.
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Section 12.5 Limit on Number of Partners. No Person shall be admitted to
the Partnership as an Additional Limited Partner if the effect of such admission
would be to cause the Partnership to have a number of Partners (including as
Partners for this purpose those Persons indirectly owning an interest in the
Partnership through another partnership, a limited liability company, a
subchapter S corporation or a grantor trust) that would cause the Partnership to
become a reporting company under the Exchange Act.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership without
dissolution. However, the Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following (each a "Liquidating
Event"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal, as defined in the Act (including, without
limitation, bankruptcy), of the sole General Partner unless, within ninety
(90) days after the withdrawal, a "majority in interest" (as such phrase is
used in Section 17-801(3) of the Act) of the remaining Partners agree in
writing, in their sole and absolute discretion, to continue the business of
the Partnership and to the appointment, effective as of the date of
withdrawal, of a successor General Partner;
C. an election to dissolve the Partnership made by the General Partner
in its sole and absolute discretion, with or without the Consent of the
Limited Partners;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
E. the occurrence of a Terminating Capital Transaction;
F. the Redemption (or acquisition by the Previous General Partner, the
General Partner and/or the Special Limited Partner) of all Partnership
Common Units other than Partnership Common Units held by the General
Partner or the Special Limited Partner; or
G. the Redemption (or acquisition by the General Partner) of all
Partnership Common Units other than Partnership Common Units held by the
General Partner.
Section 13.2 Winding Up.
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets and satisfying the claims of its creditors
and Partners. After the occurrence of a Liquidating Event, no Partner shall
take any action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Partnership's business and affairs.
The General Partner (or, in the event that there is no remaining General
Partner or the General Partner has dissolved, become bankrupt within the
meaning of the Act or ceased to operate, any Person elected by a Majority
in Interest of the Limited Partners (the General Partner or such other
Person being referred to herein as the "Liquidator")) shall be responsible
for overseeing the winding up and dissolution of the Partnership and shall
take full account of the Partnership's liabilities and property, and the
Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom (which may, to
the extent determined by the General Partner, include shares of stock in
the Previous General Partner) shall be applied and distributed in the
following order:
(1) First, to the satisfaction of all of the Partnership's debts
and liabilities to creditors other than the Partners and their Assignees
(whether by payment or the making of reasonable provision for payment
thereof);
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(2) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the General Partner (whether by payment or the making
of reasonable provision for payment thereof), including, but not limited
to, amounts due as reimbursements under Section 7.4 hereof;
(3) Third, to the satisfaction of all of the Partnership's debts
and liabilities to the other Partners and any Assignees (whether by
payment or the making of reasonable provision for payment thereof); and
(4) Subject to the terms of any Partnership Unit Designation, the
balance, if any, to the General Partner, the Limited Partners and any
Assignees in accordance with and in proportion to their positive Capital
Account balances, after giving effect to all contributions,
distributions and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof that
require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of
the Partnership the Liquidator determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue
loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets
except those necessary to satisfy liabilities of the Partnership (including
to those Partners as creditors) and/or distribute to the Partners, in lieu
of cash, as tenants in common and in accordance with the provisions of
Section 13.2.A hereof, undivided interests in such Partnership assets as
the Liquidator deems not suitable for liquidation. Any such distributions
in kind shall be made only if, in the good faith judgment of the
Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the
disposition and management of such properties as the Liquidator deems
reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair
market value of any property distributed in kind using such reasonable
method of valuation as it may adopt.
C. In the event that the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be
made pursuant to this Article 13 to the Partners and Assignees that have
positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2) to the extent of, and in proportion to, positive
Capital Account balances. If any Partner has a deficit balance in its
Capital Account (after giving effect to all contributions, distributions
and allocations for all taxable years, including the year during which such
liquidation occurs), such Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect to such
deficit, and such deficit shall not be considered a debt owed to the
Partnership or to any other Person for any purpose whatsoever. In the sole
and absolute discretion of the General Partner or the Liquidator, a pro
rata portion of the distributions that would otherwise be made to the
Partners pursuant to this Article 13 may be withheld or escrowed to provide
a reasonable reserve for Partnership liabilities (contingent or otherwise)
and to reflect the unrealized portion of any installment obligations owed
to the Partnership, provided that such withheld or escrowed amounts shall
be distributed to the General Partner and Limited Partners in the manner
and order of priority set forth in Section 13.2.A hereof as soon as
practicable.
Section 13.3 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article 13, in the event that the Partnership is
liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but
no Liquidating Event has occurred, the Partnership's Property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged and
the Partnership's affairs shall not be wound up. Instead, for federal income tax
purposes the Partnership shall be deemed to have distributed the Property in
kind to the Partners and the Assignees, who shall be deemed to have assumed and
taken such Property subject to all Partnership liabilities, all in accordance
with their respective Capital Accounts. Immediately thereafter, the Partners and
the Assignees shall be deemed to have recontributed the Partnership
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Property in kind to the Partnership, which shall be deemed to have assumed and
taken such Property subject to all such liabilities; provided, however, that
nothing in this Section 13.3 shall be deemed to have constituted any Assignee as
a Substituted Limited Partner without compliance with the provisions of Section
11.4 hereof.
Section 13.4 Rights of Limited Partners. Except as otherwise provided in
this Agreement, (a) each Limited Partner shall look solely to the assets of the
Partnership for the return of its Capital Contribution, (b) no Limited Partner
shall have the right or power to demand or receive property other than cash from
the Partnership and (c) no Limited Partner shall have priority over any other
Limited Partner as to the return of its Capital Contributions, distributions or
allocations.
Section 13.5 Notice of Dissolution. In the event that a Liquidating Event
occurs or an event occurs that would, but for an election or objection by one or
more Partners pursuant to Section 13.1 hereof, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and, in the General
Partner's sole and absolute discretion or as required by the Act, to all other
parties with whom the Partnership regularly conducts business (as determined in
the sole and absolute discretion of the General Partner), and the General
Partner may, or, if required by the Act, shall, publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the sole and absolute discretion
of the General Partner).
Section 13.6 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership cash and property as provided
in Section 13.2 hereof, the Partnership shall be terminated, a certificate of
cancellation shall be filed with the State of Delaware, all qualifications of
the Partnership as a foreign limited partnership or association in jurisdictions
other than the State of Delaware shall be cancelled, and such other actions as
may be necessary to terminate the Partnership shall be taken.
Section 13.7 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS
Section 14.1 Procedures for Actions and Consents of Partners. The actions
requiring consent or approval of Limited Partners pursuant to this Agreement,
including Section 7.3 hereof, or otherwise pursuant to applicable law, are
subject to the procedures set forth in this Article 14.
Section 14.2 Amendments. Amendments to this Agreement may be proposed by
the General Partner or by a Majority in Interest of the Limited Partners.
Following such proposal, the General Partner shall submit any proposed amendment
to the Limited Partners. The General Partner shall seek the written consent of
the Limited Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that the General Partner may deem
appropriate. For purposes of obtaining a written consent, the General Partner
may require a response within a reasonable specified time, but not less than
fifteen (15) days, and failure to respond in such time period shall constitute a
consent that is consistent with the General Partner's recommendation with
respect to the proposal; provided, however, that an action shall become
effective at such time as requisite consents are received even if prior to such
specified time.
Section 14.3 Meetings of the Partners.
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written
request by a Majority in Interest of the Limited Partners. The call shall
state the nature of the business to be transacted. Notice of any such
meeting shall be given to all Partners not less than seven (7) days nor
more than thirty (30) days prior to the date of such meeting. Partners may
vote in person or by proxy at such meeting. Whenever the vote or Consent of
Partners is permitted or required under this Agreement, such vote or
Consent may be given at a meeting of Partners or may be given in accordance
with the procedure prescribed in Section 14.3.B hereof.
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<PAGE> 261
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth
the action so taken is signed by a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement for the action in question). Such consent may be in one
instrument or in several instruments, and shall have the same force and
effect as a vote of a majority of the Percentage Interests of the Partners
(or such other percentage as is expressly required by this Agreement). Such
consent shall be filed with the General Partner. An action so taken shall
be deemed to have been taken at a meeting held on the effective date so
certified.
C. Each Limited Partner may authorize any Person or Persons to act for
it by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited
Partner or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise
provided in the proxy (or there is receipt of a proxy authorizing a later
date). Every proxy shall be revocable at the pleasure of the Limited
Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Limited
Partner executing such proxy.
D. Each meeting of Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other
Person deems appropriate in its sole and absolute discretion. Without
limitation, meetings of Partners may be conducted in the same manner as
meetings of the General Partner's shareholders and may be held at the same
time as, and as part of, the meetings of the General Partner's
shareholders.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first class United States mail or by other means of
written communication (including by telecopy, facsimile, or commercial courier
service) to the Partner or Assignee at the address set forth in Exhibit A or
such other address of which the Partner shall notify the General Partner in
writing.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" or "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver.
A. No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute
waiver of any such breach or any other covenant, duty, agreement or
condition.
B-51
<PAGE> 262
B. The restrictions, conditions and other limitations on the rights
and benefits of the Limited Partners contained in this Agreement, and the
duties, covenants and other requirements of performance or notice by the
Limited Partners, are for the benefit of the Partnership and, except for an
obligation to pay money to the Partnership, may be waived or relinquished
by the General Partner, in its sole and absolute discretion, on behalf of
the Partnership in one or more instances from time to time and at any time;
provided, however, that any such waiver or relinquishment may not be made
if it would have the effect of (i) creating liability for any other Limited
Partner, (ii) causing the Partnership to cease to qualify as a limited
partnership, (iii) reducing the amount of cash otherwise distributable to
the Limited Partners, (iv) resulting in the classification of the
Partnership as an association or publicly traded partnership taxable as a
corporation or (v) violating the Securities Act, the Exchange Act or any
state "blue sky" or other securities laws; provided, further, that any
waiver relating to compliance with the Ownership Limit or other
restrictions in the Charter shall be made and shall be effective only as
provided in the Charter.
Section 15.7 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto.
Section 15.8 Applicable Law. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware,
without regard to the principles of conflicts of law. In the event of a conflict
between any provision of this Agreement and any non-mandatory provision of the
Act, the provisions of this Agreement shall control and take precedence.
Section 15.9 Entire Agreement. This Agreement contains all of the
understandings and agreements between and among the Partners with respect to the
subject matter of this Agreement and the rights, interests and obligations of
the Partners with respect to the Partnership.
Section 15.10 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
Section 15.11 Limitation to Preserve REIT Status. Notwithstanding anything
else in this Agreement, to the extent that the amount paid, credited,
distributed or reimbursed by the Partnership to any REIT Partner or its
officers, directors, employees or agents, whether as a reimbursement, fee,
expense or indemnity (a "REIT Payment"), would constitute gross income to the
REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3),
then, notwithstanding any other provision of this Agreement, the amount of such
REIT Payments, as selected by the General Partner in its discretion from among
items of potential distribution, reimbursement, fees, expenses and indemnities,
shall be reduced for any Fiscal Year so that the REIT Payments, as so reduced,
for or with respect to such REIT Partner shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) four and nine-tenths
percent (4.9%) of the REIT Partner's total gross income (but excluding the
amount of any REIT Payments) for the Fiscal Year that is described in
subsections (A) through (H) of Code Section 856(c)(2) over (b) the amount
of gross income (within the meaning of Code Section 856(c)(2)) derived by
the REIT Partner from sources other than those described in subsections (A)
through (H) of Code Section 856(c)(2) (but not including the amount of any
REIT Payments); or
(ii) an amount equal to the excess, if any, of (a) twenty-four percent
(24%) of the REIT Partner's total gross income (but excluding the amount of
any REIT Payments) for the Fiscal Year that is described in subsections (A)
through (I) of Code Section 856(c)(3) over (b) the amount of gross income
(within the meaning of Code Section 856(c)(3)) derived by the REIT Partner
from sources other than those described in subsections (A) through (I) of
Code Section 856(c)(3) (but not including the amount of any REIT Payments);
B-52
<PAGE> 263
provided, however, that REIT Payments in excess of the amounts set forth in
clauses (i) and (ii) above may be made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that the receipt of such excess
amounts shall not adversely affect the REIT Partner's ability to qualify as a
REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a
consequence of the limitations set forth in this Section 15.11, such REIT
Payments shall carry over and shall be treated as arising in the following
Fiscal Year. The purpose of the limitations contained in this Section 15.11 is
to prevent any REIT Partner from failing to qualify as a REIT under the Code by
reason of such REIT Partner's share of items, including distributions,
reimbursements, fees, expenses or indemnities, receivable directly or indirectly
from the Partnership, and this Section 15.11 shall be interpreted and applied to
effectuate such purpose.
Section 15.12 No Partition. No Partner nor any successor-in-interest to a
Partner shall have the right while this Agreement remains in effect to have any
property of the Partnership partitioned, or to file a complaint or institute any
proceeding at law or in equity to have such property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors and
assigns hereby waives any such right. It is the intention of the Partners that
the rights of the parties hereto and their successors-in-interest to Partnership
property, as among themselves, shall be governed by the terms of this Agreement,
and that the rights of the Partners and their successors-in-interest shall be
subject to the limitations and restrictions as set forth in this Agreement.
Section 15.13 No Third-Party Rights Created Hereby. The provisions of this
Agreement are solely for the purpose of defining the interests of the Partners,
inter se; and no other person, firm or entity (i.e., a party who is not a
signatory hereto or a permitted successor to such signatory hereto) shall have
any right, power, title or interest by way of subrogation or otherwise, in and
to the rights, powers, title and provisions of this Agreement. No creditor or
other third party having dealings with the Partnership shall have the right to
enforce the right or obligation of any Partner to make Capital Contributions or
loans to the Partnership or to pursue any other right or remedy hereunder or at
law or in equity. None of the rights or obligations of the Partners herein set
forth to make Capital Contributions or loans to the Partnership shall be deemed
an asset of the Partnership for any purpose by any creditor or other third
party, nor may any such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or any of the Partners.
B-53
<PAGE> 264
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
PREVIOUS GENERAL PARTNER:
APARTMENT INVESTMENT AND MANAGEMENT
COMPANY
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: Vice Chairman
GENERAL PARTNER:
AIMCO-GP, INC.
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: Vice President
SPECIAL LIMITED PARTNER:
AIMCO-LP, INC.
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: Vice President
LIMITED PARTNERS:
By: AIMCO-GP, INC.,
as attorney-in-fact
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: Vice President
B-54
<PAGE> 265
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
BAYWOOD PARTNERS, LTD.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 266
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-13
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-15
Fairness of the Offer........................ S-16
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-17
Conflicts of Interest........................ S-17
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Baywood
Partners, Ltd.............................. S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-61
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-62
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
CONFLICTS OF INTEREST.......................... S-71
Conflicts of Interest with Respect to the
Offer...................................... S-71
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-71
Competition Among Properties................. S-71
Features Discouraging Potential Takeovers.... S-71
Future Exchange Offers....................... S-71
YOUR PARTNERSHIP............................... S-72
General...................................... S-72
Your Partnership and its Property............ S-72
</TABLE>
i
<PAGE> 267
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-72
Investment Objectives and Policies; Sale or
Financing of Investments................... S-72
Capital Replacement.......................... S-73
Borrowing Policies........................... S-73
Competition.................................. S-73
Legal Proceedings............................ S-73
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-75
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
Distributions and Transfers of Units......... S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-78
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-78
LEGAL MATTERS.................................. S-79
EXPERTS........................................ S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
</TABLE>
ii
<PAGE> 268
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Baywood Partners, Ltd. For each unit that you tender, you may choose to
receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System". There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 269
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)............................... $ -- --
Third Quarter.......................... $41 $30 15/16 $ -- $ --
Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter......................... 38 32 0.5625 0.5625
Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter......................... 29 3/4 26 0.4625 0.4625
First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter.......................... 22 18 3/8 0.4250 0.4250
Second Quarter......................... 21 18 3/8 0.4250 0.4250
First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
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- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $4,640.63 per unit for the six
months ended June 30, 1998 (equivalent to $9,281.26 on an annual basis). We
will pay fixed quarterly distributions of $ per unit on the
Tax-Deferral % Preferred OP Units before any distributions are paid to
holders of Tax-Deferral Common OP Units. We pay quarterly distributions on
the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the six months ended June 30, 1998, we paid distributions
of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25
on an annual basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units or distributions
of $ per year on the number of Tax-Deferral Common OP Units that you
would receive in an exchange for each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single property to holding an
interest in an operating business that owns and manages a large portfolio
of properties, with risks that do not exist for your partnership. You
should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
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THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
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Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
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Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary dies not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
property to an interest in a partnership that invests in and manages a large
portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
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activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Another option for liquidation of your investment would
be to sell your units in a private transaction. Any such sale could be at a
very substantial discount from your pro rata share of the fair market value
of your partnership's property and might involve significant expense and
delay.
Continuation of Your Partnership Without the Offer. A second alternative
would be for your partnership to continue its business without our offer. A
number of advantages could result from the continued operation of your
partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner expects to
result from the offer. For example, a partner of your partnership would
have no opportunity for liquidity unless he were to sell his units in a
private transaction. Any such sale would likely be at a very substantial
discount from the partner's pro rata share of the fair market value of your
partnership's property.
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Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying
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Letter of Transmittal, including the instructions thereto, as the same may
be supplemented or amended from time to time (the "Letter of Transmittal"). To
be eligible to receive Tax-Deferral % Preferred OP Units, Tax-Deferral
Common OP Units or cash pursuant to the offer, you must validly tender and not
withdraw your units on or prior to the Expiration Date. For administrative
purposes, the transfer of units tendered pursuant to the offer will be deemed to
take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
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Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your
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property's physical condition, location and above-market mortgage interest
rates. In addition, we considered the recent decline in the market for equity
securities, including those of REITs and the decline in the availability of
commercial mortgage financing. Although the direct capitalization method is a
widely-accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
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If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership has no such
limitation.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for
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managing your partnership's property and (ii) our desire to purchase units at a
low price and your desire to sell units at a high price. Your general partner
makes no recommendation as to whether you should tender or refrain from
tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual management fee equal to 5% of the Net Cash Flow (as defined in your
partnership's agreement of limited partnership) of your partnership and may
receive reimbursement for expenses generated in its capacity as general partner.
The property manager received management fees of $64,690 in 1996, $65,846 in
1997 and $32,547 for the first six months of 1998. We have no current intention
of changing the fee structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Baywood Partners, Ltd. is an Alabama
limited partnership which was formed on January 1, 1979 for the purpose of
owning and operating an apartment property located in Gretna, Louisiana, known
as "Baywood Apartments." In 1979, it completed a private placement of units that
raised net proceeds of approximately $1,984,000. Baywood Apartments consists of
226 apartment units. Your partnership has no employees.
Property Management. Since November, 1992, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2015, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $4,358,066, payable to FNMA, which bears
interest at a rate of 7.83%. The mortgage debt is due in October, 2003. Your
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partnership also has a second mortgage note outstanding of $142,290, on the same
terms as the current mortgage note. Your partnership's agreement of limited
partnership also allows your general partner to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 288
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 289
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 290
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30, 1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,150,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 291
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 292
SUMMARY FINANCIAL INFORMATION OF BAYWOOD PARTNERS, LTD.
The summary financial information of Baywood Partners, Ltd. for the six
months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Baywood Partners, Ltd. for the years ended December 31, 1997 and
1996, 1995 and 1994 is based on audited financial statements. This information
should be read in conjunction with such financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Your Partnership" included herein. See "Index to
Financial Statements."
BAYWOOD PARTNERS, LTD.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............... 654,689 668,107 1,324,481 1,325,546 1,297,874 1,237,530 1,200,446
Net Income/(Loss)............ 103,558 132,679 162,269 168,889 135,571 20,748 55,605
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation... 1,669,602 1,603,008 1,644,680 1,580,737 1,479,267 1,411,587 1,370,493
Total Assets................. 2,512,440 2,574,936 2,589,028 2,590,558 2,537,235 2,761,627 2,686,639
Mortgage Notes Payable,
including Accrued
Interest................... 4,454,816 4,505,759 4,469,935 4,518,594 4,563,624 4,605,295 4,644,184
Partners'
Capital/(Deficit).......... (2,023,346) (2,004,343) (1,974,753) (2,040,052) (2,158,589) (2,041,647) (2,062,395)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per Common OP Unit and
historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $1.125 $1.85 $4,640.63 $3,030.31
</TABLE>
S-25
<PAGE> 293
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multihousing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 294
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single property. In contrast,
the AIMCO Operating Partnership is in the business of acquiring, marketing,
managing and operating a large portfolio of apartment properties. While
diversification of assets may reduce certain risks of investment attributable to
a single property or entity, there can be no assurance as to the value or
performance of our securities or our portfolio of properties as compared to the
value of your units or your partnership. Proceeds of future asset sales or
refinancings by the AIMCO Operating Partnership generally will be reinvested
rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
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Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June 30, 1998 were $4,640.63 per unit (equivalent
to $9,281.26 on an annualized basis). This is equivalent to distributions of
$ per year on the number of tax-deferral % Preferred OP Units, or
distributions of $ per year on the number of tax deferral Common OP Units,
that you would receive in exchange for each of your partnership's units.
Therefore, distributions with respect to the Preferred OP Units and Common OP
Units that we are offering are expected to be , immediately following our
offer, than the distributions with respect to your units. See "Comparison of
Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
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MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service revised its outlook for the ratings of AIMCO from
stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO, and confirmed its previous ratings related to AIMCO's
preferred stock and debt in its shelf registration statement. Moody's indicated
that its rating action continues to reflect AIMCO's increasing leveraged
profile, including high levels of secured debt and preferred stock, limited
financial flexibility and integration risks resulting from the merger with
Insignia. Moody's also noted AIMCO's high level of encumbered properties and
material investments in loans to highly leveraged partnerships in which AIMCO
owns a general partnership interest. At the same time, Moody's confirmed its
existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for
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investment, business, personal or other purposes, at their option. If your
partnership were to sell its assets and liquidate, you and your partners would
not need to rely upon capitalization of income or other valuation methods to
estimate the fair market value of your partnership's assets. Instead, such
assets would be valued through negotiations with prospective purchasers (in many
cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Another option for liquidation would be to sell
your units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one
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class of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred Units rank equal to six other outstanding
classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998 (iii) any extraordinary
or material adverse change in the financial, real estate or money markets
or major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998 (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks
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or other lending institutions, or (viii) in the case of any of the
foregoing existing at the time of the commencement of the offer, in the
sole judgment of the AIMCO Operating Partnership, a material acceleration
or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25, and distributions with respect to your units for
the six months ended June 30, 1998 were $4,640.63 (equivalent to $9,281.26
on an annualized basis). This is equivalent to distributions of $ per
year on the number of tax-deferral % Preferred OP Units, or
distributions of $ per year on the number of tax deferral Common OP
Units, that you would receive in exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to
your units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
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Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also
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performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information
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contained in this Prospectus Supplement or that were provided, made
available, or otherwise communicated to Stanger by your partnership, AIMCO, or
the management of the partnership's property. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of your partnership. Stanger relied upon the representations of
your partnership and AIMCO concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, the determination and valuation of non-real
estate assets and liabilities of your partnership, the allocation of your
partnership's net values between the general partner, special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
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COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Alabama law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Baywood Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2015. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed for the sole purpose The purpose of the AIMCO Operating Partnership is to
of being the sole limited partner of Baywood conduct any business that may be lawfully conducted by
Apartments, Ltd., an Alabama limited partnership, which a limited partnership organized pursuant to the
holds your partnership's property. Subject to Delaware Revised Uniform Limited Partnership Act (as
restrictions contained in your partnership's agreement amended from time to time, or any successor to such
of limited partnership, your partnership may perform statute) (the "Delaware Limited Partnership Act"),
any acts to accomplish the foregoing including, without provided that such business is to be conducted in a
limitation, borrowing funds and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit up to 32 additional Partnership for any partnership purpose from time to
limited partners by selling not more than 1,984 units time to the limited partners and to other persons, and
for cash and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital
of limited partnership. The capital contribution need contributions as may be established by the general
not be equal for all limited partners and no action or partner in its sole discretion. The net capital
consent is required in connection with the admission of contribution need not be equal for all OP Unitholders.
any additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership and its The AIMCO Operating Partnership may lend or contribute
affiliates may make loans to your partnership but is funds or other assets to its subsidiaries or other
precluded from receiving interest in excess of what persons in which it has an equity investment, and such
would be charged by unrelated banks for comparable persons may borrow funds from the AIMCO Operating
loans. Your partnership is prohibited from making loans Partnership, on terms and conditions established in the
to the general partner, the limited partners or any sole and absolute discretion of the general partner. To
their affiliates and cannot sell or lease its interest the extent consistent with the business purpose of the
in your partnership's property to the general partner, AIMCO Operating Partnership and the permitted
the limited partners or any of their affiliates. activities of the general partner, the AIMCO Operating
Partnership may transfer assets to joint ventures,
limited liability companies, partnerships,
corporations, business trusts or other business
entities in which it is or thereby becomes a
participant upon such terms and subject to such
conditions consistent with the AIMCO Operating Part-
nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money and execute promissory notes secured by restrictions on borrowings, and the general partner has
a mortgage on your partnership's property, provided full power and authority to borrow money on behalf of
that your partnership may borrow only such amounts for the AIMCO Operating Partnership. The AIMCO Operating
which it can reasonably expect to meets debt service Partnership has credit agreements that restrict, among
requirements from anticipated Net Cash Flow and may not other things, its ability to incur indebtedness. See
issue senior securities except as set forth in your "Risk Factors -- Risks of Significant Indebtedness" in
partnership's agreement of limited partnership. the accompanying Prospectus.
</TABLE>
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<PAGE> 331
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles limited partners to review the records of your with a statement of the purpose of such demand and at
partnership at reasonable times upon reasonable notice such OP Unitholder's own expense, to obtain a current
at the location where such records are kept by your list of the name and last known business, residence or
partnership. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has complete All management powers over the business and affairs of
discretion in the management and control of the the AIMCO Operating Partnership are vested in AIMCO-GP,
business of your partnership, except to the extent Inc., which is the general partner. No OP Unitholder
specifically limited by your partnership's agreement of has any right to participate in or exercise control or
limited partnership or by law. No limited partner may management power over the business and affairs of the
take part in the management of the business of your AIMCO Operating Partnership. The OP Unitholders have
partnership, transact any business for your partnership the right to vote on certain matters described under
or have the power to sign for or bind your partnership "Comparison of Ownership of Your Units and AIMCO OP
to any agreement or document. Units -- Voting Rights" below. The general partner may
not be removed by the OP Unitholders with or without
cause.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Notwithstanding anything to the contrary set forth in
does not limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general
your partnership or the limited partners for any act partner is not liable to the AIMCO Operating
performed in its capacity as general partner. However, Partnership for losses sustained, liabilities incurred
your partnership will indemnify and save harmless the or benefits not derived as a result of errors in
general partner of your partnership, its officers, judgment or mistakes of fact or law of any act or
directors, employees, affiliates, designees and omission if the general partner acted in good faith.
nominees from any loss or damage, including legal fees The AIMCO Operating Partnership Agreement provides for
and expenses and amounts paid in settlement, incurred indemnification of AIMCO, or any director or officer of
by any of them on behalf of your partnership or in AIMCO (in its capacity as the previous general partner
furtherance of your partnership's interest, provided of the AIMCO Operating Partnership), the general
that the general partner or other person sued will not partner, any officer or director of general partner or
be entitled to indemnification for losses sustained by the AIMCO Operating Partnership and such other persons
reason of its negligence, gross negligence, willful as the general partner may designate from and against
misconduct or breach of fiduciary obligations. all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the general partner of your partnership has exclusive management power over the business and
may be removed and an additional or substitute general affairs of the AIMCO Operating Partnership. The general
partner may be elected upon the written consent or partner may not be removed as general partner of the
affirmative vote of the limited partners owning a AIMCO Operating Partnership by the OP Unitholders with
majority of the limited partnership units outstanding. or without cause. Under the AIMCO Operating Partnership
Such actions may be taken without the consent of the Agreement, the general partner may, in its sole
existing general partner or any general partner who has discretion, prevent a transferee of an OP Unit from
been removed. With the consent of a majority in becoming a substituted limited partner pursuant to the
interest of the limited partners, the general partner AIMCO Operating Partnership Agreement. The general
may add or substitute any other person as general partner may exercise this right of approval to deter,
partner. Upon ninety days notice, a general partner may delay or hamper attempts by persons to acquire a
resign provided that your partnership has a remaining controlling interest in the AIMCO Operating Partner-
corporation general partner who is qualified to act as ship. Additionally, the AIMCO Operating Partnership
such or the remaining individual general partners have Agreement contains restrictions on the ability of OP
an aggregate net worth that is substantial. A limited Unitholders to transfer their OP Units. See
partner may not transfer his interests in your "Description of OP Units -- Transfers and Withdrawals"
partnership without the consent of the general partner, in the accompanying Prospectus.
provided that a limited partner may make a gratuitous
transfer to certain specified individuals.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth
partnership may be proposed by the general partner of in the AIMCO Operating Partnership Agreement, whereby
your partnership or by limited partners owning at least the general partner may, without the consent of the OP
10% of the then outstanding limited partnership Unitholders, amend the AIMCO Operating Partnership
interests. Approval by a majority of the then Agreement, amendments to the AIMCO Operating
outstanding limited partnership interests is necessary Partnership Agreement require the consent of the
to effect an amendment to your partnership's agreement holders of a majority of the outstanding Common OP
of limited partnership. In addition, the general Units, excluding AIMCO and certain other limited
partner may amend your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to
limited partnership from time to time to add the AIMCO Operating Partnership Agreement may be
representations, duties or obligation of the general proposed by the general partner or by holders of a
partner or to surrender rights granted to the general Majority in Interest. Following such proposal, the
partner, cure any ambiguity or make modifications general partner will submit any proposed amendment to
required by state or Federal securities law. the OP Unitholders. The general partner will seek the
Notwithstanding the foregoing, certain provisions of written consent of the OP Unitholders on the proposed
your partnership's agreement of limited partnership are amendment or will call a meeting to vote thereon. See
not subject to amendment in any case. "Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives an annual management fee equal to 5% of the capacity as general partner of the AIMCO Operating
Net Cash Flow (as defined in your partnership's Partnership. In addition, the AIMCO Operating Part-
agreement of limited partnership. Moreover, the general nership is responsible for all expenses incurred
partner or certain affiliates may be entitled to relating to the AIMCO Operating Partnership's ownership
compensation for additional services rendered. of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 333
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, no limited partner is personally liable negligence, no OP Unitholder has personal liability for
for any of the debts of your partnership or any of the the AIMCO Operating Partnership's debts and
losses thereof beyond the amount contributed by the obligations, and liability of the OP Unitholders for
limited partner to the capital of your partnership, its the AIMCO Operating Partnership's debts and obligations
notes for capital contributions to your partnership and is generally limited to the amount of their invest-
the limited partner's share of undistributed profits of ment in the AIMCO Operating Partnership. However, the
your partnership. limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Unless otherwise provided for in the relevant
provides that the general partner must manage and partnership agreement, Delaware law generally requires
control the affairs of your partnership to the best of a general partner of a Delaware limited partnership to
its ability and use its best efforts to carry out the adhere to fiduciary duty standards under which it owes
purposes of your partnership. The general partner must its limited partners the highest duties of good faith,
diligently and faithfully devote such of its time to fairness and loyalty and which generally prohibit such
the business of your partnership at it deems necessary general partner from taking any action or engaging in
to conduct it for the greatest advantage of your any transaction as to which it has a conflict of
partnership. The general partner has a fiduciary interest. The AIMCO Operating Partnership Agreement
responsibility for the safekeeping and use of all funds expressly authorizes the general partner to enter into,
and assets of your partnership, whether or not in its on behalf of the AIMCO Operating Partnership, a right
immediate possession or control and may not employ, or of first opportunity arrangement and other conflict
permit another to employ, such funds or assets in any avoidance agreements with various affiliates of the
manner except for the exclusive benefit of your AIMCO Operating Partnership and the general partner, on
partnership. such terms as the general partner, in its sole and
absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 334
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, limited applicable law or in the AIMCO ship Agreement, the OP Unitholders
partners have voting rights in Operating Partnership Agreement, have voting rights only with
certain circumstances and are not the holders of the Preferred OP respect to certain limited matters
deemed to take part in the control Units will have the same voting such as certain amendments and
of your partnership by virtue of rights as holders of the Common OP termination of the AIMCO Operating
their voting rights. An affirmative Units. See "Description of OP Partnership Agreement and certain
vote by holders of a majority of Units" in the accompanying transactions such as the
the outstanding units is necessary Prospectus. So long as any institution of bankruptcy
for: the removal of the general Preferred OP Units are outstand- proceedings, an assignment for the
partner, the election of an ing, in addition to any other vote benefit of creditors and certain
additional or substitute general or consent of partners required by transfers by the general partner of
partner, an amendment to your law or by the AIMCO Operating its interest in the AIMCO Operating
partnership's agreement of limited Partnership Agree- Part-
</TABLE>
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<PAGE> 335
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
partnership and the dissolution of ment, the affirmative vote or nership or the admission of a
your partnership before the date of consent of holders of at least 50% successor general partner.
termination set forth in your of the outstanding Preferred OP
partnership's agreement of limited Units will be necessary for Under the AIMCO Operating Partner-
partnership. effecting any amendment of any of ship Agreement, the general partner
the provisions of the Partnership has the power to effect the
A general partner may cause the Unit Designation of the Preferred acquisition, sale, transfer,
dissolution of your partnership by OP Units that materially and exchange or other disposition of
retiring unless, the remaining adversely affects the rights or any assets of the AIMCO Operating
general partner elects to continue preferences of the holders of the Partnership (including, but not
your partnership or if the re- Preferred OP Units. The creation or limited to, the exercise or grant
maining general partner fails to do issuance of any class or series of of any conversion, option,
so, the limited partners owning partnership units, including, privilege or subscription right or
more the 50% of the then without limitation, any partner- any other right available in
outstanding units elect to con- ship units that may have rights connection with any assets at any
tinue your partnership and, if senior or superior to the Preferred time held by the AIMCO Operating
necessary, elect a new general OP Units, shall not be deemed to Partnership) or the merger,
partner. materially adversely affect the consolidation, reorganization or
rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
The general partner of your Holders of Preferred OP Units will Subject to the rights of holders of
partnership annually distributes be entitled to receive, when and as any outstanding Preferred OP Units,
substantially all of your declared by the board of directors the AIMCO Operating Partnership
partnership's Net Cash Flow (as of the general partner of the AIMCO Agreement requires the general
defined in your partnership's Operating Partnership, quarterly partner to cause the AIMCO
agreement of limited partnership) cash distributions at the rate of Operating Partnership to dis-
with each partner receiving their $ per Preferred OP Unit; tribute quarterly all, or such
pro rata share in accordance with provided, however, that at any time portion as the general partner may
their ownership of units. Any pro- and from time to time on or after in its sole and absolute discretion
ceeds received from the sale or the fifth anniversary of the issue determine, of Available Cash (as
refinancing of your partnership's date of the Preferred OP Units, the defined in the AIMCO Operating
property will be distributed in AIMCO Operating Partnership may Partnership Agreement) generated by
accordance with your part- adjust the annual distribution rate the AIMCO Operating Partnership
nership's agreement of limited on the Preferred OP Units to the during such quarter to the general
partnership. The distributions lower of (i) % plus the annual partner, the special limited
payable to the partners are not interest rate then applicable to partner and the holders of Common
fixed in amount and depend upon the U.S. Treasury notes with a maturity OP Units on the record date
operating results and net sales or of five years, and (ii) the annual established by the general partner
refinancing proceeds available from dividend rate on the most recently with respect to such quarter, in
the disposition of your issued AIMCO non-convertible accordance with their respective
partnership's assets. The general preferred stock which ranks on a interests in the AIMCO Operating
partner designates a record date to parity with its Class H Cumu- Partnership on such record date.
determine partners entitled to cash Holders of any other Pre-
distributions which is not be less
</TABLE>
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<PAGE> 336
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
than fifteen days nor more the lative Preferred Stock. Such ferred OP Units issued in the
thirty days before the distributions will be cumulative future may have priority over the
distribution. No limited partner from the date of original issue. general partner, the special
has priority over any other limited Holders of Preferred OP Units will limited partner and holders of
partner as to distributions. Your not be entitled to receive any Common OP Units with respect to
partnership has made distributions distributions in excess of distributions of Available Cash,
in the past and is projected to cumulative distributions on the distributions upon liquidation or
make distributions in 1998. Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may not transfer There is no public market for the There is no public market for the
or assign any or any portion of his Preferred OP Units and the OP Units. The AIMCO Operating Part-
interest in his limited partnership Preferred OP Units are not listed nership Agreement restricts the
interest unless the general partner on any securities exchange. The transferability of the OP Units.
consents (which consent may be Preferred OP Units are subject to Until the expiration of one year
withheld at the sole discretion of restrictions on transfer as set from the date on which an OP
the general partner) and the forth in the AIMCO Operating Unitholder acquired OP Units,
limited partner complies with Partnership Agreement. subject to certain exceptions, such
applicable state and Federal OP Unitholder may not transfer all
securities laws. In addition, no Pursuant to the AIMCO Operating or any portion of its OP Units to
transfer may be made of less than Partnership Agreement, until the any transferee without the consent
30 units. Notwithstanding the expiration of one year from the of the general partner, which
foregoing, a limited partner may date on which a holder of Preferred consent may be withheld in its sole
gratuitously transfer all or any OP Units acquired Preferred OP and absolute discretion. After the
portion of his interest in his Units, subject to certain expiration of one year, such OP
limited partnership interest to his exceptions, such holder of Unitholder has the right to
spouse, any member of his family, a Preferred OP Units may not transfer transfer all or any portion of its
trust for the benefit of those all or any portion of its Pre- OP Units to any person, subject to
individuals or a corporation in ferred OP Units to any transferee the satisfaction of certain
which such partner has a majority without the consent of the general conditions specified in the AIMCO
interest. No assignment or partner, which consent may be Operating Partnership Agreement,
transfers will be permitted if such withheld in its sole and absolute including the general partner's
assignment or transfer would result discretion. After the expiration of right of first refusal. See
in 50% or more of the limited one year, such holders of Preferred "Description of OP Units --
partnership interest being assigned OP Units has the right to transfer Transfers and Withdrawals" in the
or transferred within any all or any portion of its Preferred accompanying Prospectus.
twelve-month period. OP Units to any person, subject to
the satisfaction of
</TABLE>
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<PAGE> 337
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
There are no redemption rights certain conditions specified in the After the first anniversary of
associated with your units. AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
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CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership property. Additionally, we desire
to purchase units at a low price and you desire to sell units at a high price.
The general partner of your partnership makes no recommendation as to whether
you should tender or refrain from tendering your units. Such conflicts of
interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual management fee equal to 5% of the Net Cash Flow (as defined in your
partnership's agreement of limited partnership) from your partnership and may
receive reimbursement for expenses generated in its capacity as general partner.
The property manager received management fees of $64,690 in 1996, $65,846 in
1997 and $32,547 for the first six months of 1998. The AIMCO Operating
Partnership has no current intention of changing the fee structure for the
manager of your partnership property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
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YOUR PARTNERSHIP
GENERAL
Baywood Partners, Ltd. is an Alabama limited partnership which raised net
proceeds of approximately $1,984,000 in 1979 through a private offering. The
promoter for the private offering of your partnership was Angeles Properties,
Inc. Insignia acquired your partnership in November, 1992. AIMCO acquired
Insignia in October, 1998. There are currently a total of 35 limited partners of
your partnership and a total of 32 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the multi-family property described
below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on January 1, 1979 for the purpose of owning
and operating an apartment property located in Gretna, Louisiana, known as
"Baywood Apartments." Your partnership's property consists of 226 apartment
units. There are 104 one-bedroom apartments, 76 two-bedroom apartments and 46
three-bedroom apartments. Your partnership's property had an average occupancy
rate of approximately 96.02% in 1996 and 96.02% in 1997.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since November, 1992, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $64,690, $65,846 and $32,547, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2015
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
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<PAGE> 340
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $4,358,066, payable to FNMA, which bears interest at a rate of
7.83%. The mortgage debt is due in October, 2003. Your partnership also has a
second mortgage note outstanding of $142,290, on the same terms as the current
mortgage note. Your partnership's agreement of limited partnership also allows
the general partner of your partnership to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. The financial statements have been
prepared on an income tax basis. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS
CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER.
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<PAGE> 341
Below is selected financial information for Baywood Partners, Ltd. taken
from the financial statements described above. The amounts for 1993 have been
derived from audited financial statements which are not included in this
Prospectus Supplement. See "Index to Financial Statements."
<TABLE>
<CAPTION>
BAYWOOD PARTNERS, LTD.
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents... $ 320,795 $ 433,338 $ 419,804 $ 509,885 $ 484,322 $ 635,814 $ 442,664
Land & Building............. 4,984,040 4,820,948 4,910,869 4,750,428 4,565,005 4,336,146 4,192,102
Accumulated Depreciation.... (3,314,438) (3,217,940) (3,266,189) (3,169,691) (3,085,738) (2,924,559) (2,821,609)
Other Assets................ 522,043 538,590 524,544 499,936 573,646 714,226 873,482
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets....... $ 2,512,440 $ 2,574,936 $ 2,589,028 $ 2,590,558 $ 2,537,235 $ 2,761,627 $ 2,686,639
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest.................. 4,454,816 4,505,759 4,469,935 4,518,594 4,563,624 4,605,295 4,644,184
Other Liabilities........... 80,970 73,520 93,846 112,016 132,200 197,979 104,850
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
Liabilities...... $ 4,535,786 $ 4,579,279 $ 4,563,781 $ 4,630,610 $ 4,695,824 $ 4,803,274 $ 4,749,034
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital
(Deficit)................. $(2,023,346) $(2,004,343) $(1,974,753) $(2,040,052) $(2,158,589) $(2,041,647) $(2,062,395)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BAYWOOD PARTNERS, LTD.
------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue......................... $622,964 $633,444 $1,251,888 $1,253,668 $1,227,468 $1,121,158 $1,130,064
Other Income........................... 31,725 34,663 72,593 71,878 70,406 116,372 70,382
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Revenue................. $654,689 $668,107 $1,324,481 $1,325,546 $1,297,874 $1,237,530 $1,200,446
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Expenses..................... 275,778 271,198 593,179 590,698 519,148 627,459 464,102
General & Administrative............... 25,099 11,865 36,996 50,012 42,841 47,220 136,090
Depreciation........................... 48,249 48,249 96,498 83,953 161,178 113,527 107,962
Interest Expense....................... 176,887 179,171 386,668 389,778 394,004 383,204 387,540
Property Taxes......................... 25,118 24,945 48,871 42,216 45,132 45,372 49,147
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Expenses................ $551,131 $535,428 $1,162,212 $1,156,657 $1,162,303 $1,216,782 $1,144,841
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income............................. $103,558 $132,679 $ 162,269 $ 168,889 $ 135,571 $ 20,748 $ 55,605
======== ======== ========== ========== ========== ========== ==========
</TABLE>
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<PAGE> 342
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $103,558 for the six months ended
June 30, 1998, compared to $132,679 for the six months ended June 30, 1997. The
decrease in net income of $29,121, or 21.95% is due to a decrease in rental
revenues and an increase in operating expenses. These factors are discussed in
more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$654,689 for the six months ended June 30, 1998, compared to $668,107 for the
six months ended June 30, 1997, a decrease of $13,418, or 2.01%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$275,778 for the six months ended June 30, 1998, compared to $271,198 for the
six months ended June 30, 1997, an increase of $4,580 or 1.69%. Management
expenses totaled $32,547 for the six months ended June 30, 1998, compared to
$33,521 for the six months ended June 30, 1997, a decrease of $974, or 2.91%.
General and Administrative Expenses
General and administrative expenses totaled $25,099 for the six months
ended June 30, 1998 compared to $11,865 for the six months ended June 30, 1997,
an increase of $13,234 or 111.54% The increase is primarily due to an increase
in the partnership asset management fee.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $176,887 for the six months ended June 30, 1998, compared to
$179,171 for the six months ended June 30, 1997, a decrease of $2,284, or 1.27%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $162,269 for the year ended
December 31, 1997, compared to $168,889 for the year ended December 31, 1996, a
decrease in net income of $6,620, or 3.92%.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,324,481 for the year ended December 31, 1997, compared to $1,325,546 for the
year ended December 31, 1996, a decrease of $1,065, or 0.08%.
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<PAGE> 343
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$593,179 for the year ended December 31, 1997, compared to $590,698 for the year
ended December 31, 1996, an increase of $2,481 or 0.42%. Management expenses
totaled $65,846 for the year ended December 31, 1997, compared to $64,690 for
the year ended December 31, 1996, an increase of $1,156, or 1.79%.
General and Administrative Expenses
General and administrative expenses totaled $36,996 for the year ended
December 31, 1997 compared to $50,012 for the year ended December 31, 1996, a
decrease of $13,016 or 26.03%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $386,668 for the year ended December 31, 1997, compared to
$389,778 for the year ended December 31, 1996, a decrease of $3,110, or 0.80%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $168,889 for the year ended
December 31, 1996, compared to $135,571 for the year ended December 31, 1995.
The increase in net income of $33,318, or 24.58% was primarily the result of an
increase in rental revenues and a decrease in depreciation offset by an increase
in operating expenses. The decrease in depreciation is due to some assets
becoming fully depreciated in 1995. These factors are discussed in more detail
in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,325,546 for the year ended December 31, 1996, compared to $1,297,874 for the
year ended December 31, 1995, an increase of $27,672, or 2.13%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$590,698 for the year ended December 31, 1996, compared to $519,148 for the year
ended December 31, 1995. The increase of $71,550 or 13.78%, is primarily due to
expenses incurred for paving repairs and new floor coverings and appliances at
the property. Management expenses totaled $64,690 for the year ended December
31, 1996, compared to $64,085 for the year ended December 31, 1995, an increase
of $605, or 0.94%.
General and Administrative Expenses
General and administrative expenses totaled $50,012 for the year ended
December 31, 1996 compared to $42,841 for the year ended December 31, 1995, an
increase of $7,171 or 16.74%.
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<PAGE> 344
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $389,778 for the year ended December 31, 1996, compared to
$394,004 for the year ended December 31, 1995, a decrease of $4,226, or 1.07%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $320,795 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
Partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Your partnership's agreement of
limited partnership does not limit the liability of the general partner to your
partnership or the limited partners for any act performed in its capacity as
general partner. The general partner of your partnership is owned by AIMCO. See
"Conflicts of Interest".
Under your partnership's agreement of limited partnership, your partnership
will indemnify and save harmless the general partner of your partnership, its
officers, directors, employees, affiliates, designees and nominees from any loss
or damage, including legal fees and expenses and amounts paid in settlement,
incurred by any of them on behalf of your partnership or in furtherance of your
partnership's interest, provided that the general partner or other person sued
will not be entitled to indemnification for losses sustained by reason of its
negligence, gross negligence, willful misconduct or breach of fiduciary
obligations. As part of its assumption of liabilities in the consolidation,
AIMCO will indemnify the general partner of your partnership and their
affiliates for periods prior to and following the consolidation to the extent of
the indemnity under the terms of your partnership's agreement of limited
partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partner of your partnership or any other indemnified person.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter. The
original cost per unit was $62,000.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 0.00
1995........................................................ 7,734.00
1996........................................................ 1,515.91
1997........................................................ 3,000.00
1998 (through June 30)...................................... 4,640.63
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for
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<PAGE> 345
tax purposes. However, the general partner of your partnership does not monitor
or regularly receive or maintain information regarding the prices at which
secondary sale transactions in the units have been effectuated. The general
partner of your partnership estimates, based solely on the transfer records of
your partnership (or your partnership's transfer agent), that there have been no
units transferred in sale transactions (excluding transactions believed to be
between related parties, family members or the same beneficial owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in respect of its capacity as general partner of
your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $25,620
1995........................................................ $41,259
1996........................................................ $51,614
1997........................................................ $33,198
1998 (through June 30)......................................
</TABLE>
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................................ 64,085
1996........................................................ 64,690
1997........................................................ 65,846
1998 (through June 30)...................................... 32,547
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the compensation paid to the property
manager or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
S-78
<PAGE> 346
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The consolidated financial statements -- income tax basis of Baywood
Partners, Ltd. as of December 31, 1997, 1996 and 1995 and for the years then
ended, appearing in this Prospectus Supplement have been audited by KPMG Peat
Marwick LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
S-79
<PAGE> 347
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Statement of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of June 30, 1998
(unaudited)............................................... F-2
Condensed Statements of Revenue and Expenses -- Income Tax
Basis for the six months ended June 30, 1998 and 1997
(unaudited)............................................... F-3
Condensed Statements of Cash Flows -- Income Tax Basis for
the six months ended June 30, 1998 and 1997 (unaudited)... F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-7
Consolidated Statement of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1997....... F-8
Consolidated Statement of Revenues and Expenses and Changes
in Partners' Deficit -- Income Tax Basis for the year
ended December 31, 1997................................... F-9
Consolidated Statement of Cash Flows -- Income Tax Basis for
the year ended
December 31, 1997......................................... F-10
Notes to Consolidated Financial Statements -- Income Tax
Basis..................................................... F-11
Independent Auditors' Report................................ F-15
Consolidated Statement of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1996....... F-16
Consolidated Statement of Revenues and Expenses and Changes
in Partners' Deficit -- Income Tax Basis for the year
ended December 31, 1996................................... F-17
Consolidated Statement of Cash Flows -- Income Tax Basis for
the year ended
December 31, 1996......................................... F-18
Notes to Consolidated Financial Statements -- Income Tax
Basis..................................................... F-19
Independent Auditors' Report................................ F-23
Consolidated Statements of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1995 and
1994...................................................... F-24
Consolidated Statements of Revenue and Expenses and Changes
in Partners' Deficit -- Income Tax Basis for the years
ended December 31, 1995 and 1994.......................... F-25
Consolidated Statements of Cash Flows -- Income Tax Basis
for the years ended December 31, 1995 and 1994............ F-26
Notes to Consolidated Financial Statements -- Income Tax
Basis..................................................... F-27
</TABLE>
F-1
<PAGE> 348
BAYWOOD PARTNERS, LIMITED
CONDENSED STATEMENT OF ASSETS, LIABILITIES
AND PARTNERS' DEFICIT
INCOME TAX BASIS
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 320,795
Receivables and Deposits.................................... 93,134
Investments................................................. --
Restricted Escrows.......................................... 100,031
Other Assets................................................ 328,878
Investment Property:
Land...................................................... $ 260,000
Building and related personal property.................... 4,724,040
-----------
4,984,040
Less: Accumulated depreciation.............................. (3,314,438) 1,669,602
----------- -----------
Total Assets:..................................... $ 2,512,440
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 15,857
Other Accrued Liabilities................................... 32,147
Property Taxes Payable...................................... 25,118
Tenant Security Deposits.................................... 23,150
Notes Payable............................................... 4,439,514
Partners' Capital........................................... (2,023,346)
-----------
Total Liabilities and Partners' Capital........... $ 2,512,440
===========
</TABLE>
See notes to interim financial statements.
F-2
<PAGE> 349
BAYWOOD PARTNERS, LIMITED
CONDENSED STATEMENTS OF REVENUE
AND EXPENSES
INCOME TAX BASIS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $622,964 $633,444
Other Income.............................................. 31,725 34,663
-------- --------
Total Revenues:................................... 654,689 668,107
Expenses:
Operating Expenses........................................ 275,778 271,198
General and Administrative Expenses....................... 25,099 11,865
Depreciation Expense...................................... 48,249 48,249
Interest Expense.......................................... 176,887 179,171
Property Tax Expense...................................... 25,118 24,945
-------- --------
Total Expenses:................................... 551,131 535,428
Net (Income) Loss........................................... $103,558 $132,679
======== ========
</TABLE>
See notes to interim financial statements.
F-3
<PAGE> 350
BAYWOOD PARTNERS, LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
INCOME TAX BASIS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Net Income (loss)........................................... $ 103,558 $ 132,679
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization............................... 48,249 48,249
Changes in accounts:
Receivables and deposits and other assets................. 3,921 (89,429)
Accounts Payable and accrued expenses..................... 2,426 (23,194)
--------- ---------
Net cash provided by (used in) operating activities......... 158,154 68,305
--------- ---------
Investing Activities
Property improvements and replacements...................... (73,171) (70,520)
(1,420) 50,775
--------- ---------
Net cash provided by (used in) investing activities......... (74,591) (19,745)
--------- ---------
Financing Activities
Payments on mortgage........................................ (30,421) (28,137)
Partners' Distributions..................................... (152,151) (96,970)
--------- ---------
Net cash provided by (used in) financing activities......... (182,572) (125,107)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (99,009) (76,547)
Cash and cash equivalents at beginning of year.............. 419,804 509,885
--------- ---------
Cash and cash equivalents at end of period.................. $ 320,795 $ 433,338
========= =========
</TABLE>
See notes to interim financial statements.
F-4
<PAGE> 351
BAYWOOD PARTNERS, LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS -- INCOME TAX BASIS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Baywood Partners,
Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997
have been prepared in accordance with the accounting basis for federal income
tax reporting. Accordingly, they do not include all the information and
footnotes required by the accounting basis for federal income tax reporting for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
NOTE B -- SUBSEQUENT EVENT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-5
<PAGE> 352
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-6
<PAGE> 353
INDEPENDENT AUDITORS' REPORT
General Partners
Baywood Partners, Limited:
We have audited the consolidated statement of assets, liabilities and
partners' deficit -- income tax basis of Baywood Partners, Limited (a limited
partnership) and its limited partnership interest as of December 31, 1997, and
the related consolidated statements of revenues and expenses and changes in
partners' deficit -- income tax basis and cash flows -- income tax basis for the
year then ended. These consolidated financial statements are the responsibility
of the partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note A, these consolidated financial statements were
prepared on the basis of accounting Baywood Partners, Limited uses for Federal
income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Baywood
Partners, Limited and its limited partnership interest as of December 31, 1997,
and the results of their operations and their cash flows for the year then
ended, on the basis of accounting described in Note A.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 18,1998
F-7
<PAGE> 354
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT --
INCOME TAX BASIS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Cash and cash equivalents................................... $ 419,804
Receivables and deposits.................................... 93,448
Restricted escrows (Note B)................................. 98,611
Other assets................................................ 332,485
Investment properties (Note C):
Land...................................................... 260,000
Buildings and related personal property................... 4,650,869
-----------
4,910,869
Less accumulated depreciation............................. (3,266,189)
-----------
1,644,680
-----------
$ 2,589,028
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 19,844
Tenant security deposits.................................. 27,490
Other liabilities......................................... 46,512
Mortgage notes payable (Note C)........................... 4,469,935
Partners' deficit........................................... (1,974,753)
-----------
$ 2,589,028
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-8
<PAGE> 355
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN
PARTNERS' DEFICIT -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Revenues:
Rental income............................................. $ 1,251,888
Other income.............................................. 72,593
-----------
Total revenues.................................... 1,324,481
-----------
Expenses:
Operating (Note D)........................................ 593,179
General and administrative (Note D)....................... 36,996
Depreciation.............................................. 96,498
Interest.................................................. 386,668
Property taxes............................................ 48,871
-----------
Total expenses.................................... 1,162,212
-----------
Net income.................................................. 162,269
Distributions to partners................................... (96,970)
Partners' deficit at beginning of year...................... (2,040,052)
-----------
Partners' deficit at end of year............................ $(1,974,753)
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-9
<PAGE> 356
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 162,269
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 96,498
Amortization of discounts and loan costs............... 29,445
Change in accounts:
Receivables and deposits............................. (695)
Other assets......................................... (7,079)
Accounts payable..................................... (13,175)
Tenant security deposit liabilities.................. (6,000)
Other liabilities.................................... 1,005
---------
Net cash provided by operating activities......... 262,268
---------
Cash flows from investing activities:
Property improvements and replacements.................... (160,441)
Net deposits to restricted escrows........................ (4,053)
---------
Net cash used in investing activities............. (164,494)
---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (57,395)
Distributions to partners................................. (96,970)
---------
Net cash used in financing activities............. (154,365)
---------
Net decrease in cash and cash equivalents................... (56,591)
Cash and cash equivalents at beginning of year.............. 476,395
---------
Cash and cash equivalents at end of year.................... $ 419,804
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 357,223
=========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-10
<PAGE> 357
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1997
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated financial statements include the accounts of Baywood
Partners, Limited (the "Partnership"), and its Limited Partnership interest in
Baywood Apartments (the "Project Partnership"). The Partnership was organized
solely to invest in the Project Partnership. The Project Partnership owns and
operates a 226 unit apartment complex located in Jefferson Parish, Louisiana.
The Partnership was organized as an Alabama limited partnership on February
15, 1979. The General Partner of the Partnership is Angeles Properties, Inc.
("API"), which acts as a general partner in other limited partnerships and is an
affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner
of the Project Partnership. Pursuant to the terms of the Agreement and Amended
Certificate of Limited Partnership (the "Agreement"), API has contributed
$100,000 to the Partnership for which it is entitled to a 1% operating interest
in the profits, losses, credits and cash distributions of the Partnership.
Capital contributions of the limited partners aggregated $1,936,200.
Pursuant to the terms of the Agreement, the limited partners will receive a 99%
interest in the operating profits, losses, credits and cash distributions of the
Partnership.
The Partnership had made capital contributions of $1,442,000 to the Project
Partnership and is entitled to a 99% interest in the operating profits, losses,
credits and cash distributions of the Project Partnership. AIPI is entitled to
the remaining 1% of the same.
Basis of Accounting
The consolidated financial statements are prepared on the basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The consolidated financial
statements represent the combination of both the Partnership and Project
Partnership's tax returns. The tax basis used differs from GAAP primarily
because on the tax basis (1) certain rental income received in advance is
recorded as income in the year received rather than in the year earned, (2)
buildings and related personal property are depreciated using the lives
specified under the accelerated cost recovery system ("ACRS") or the modified
accelerated cost recovery system ("ACRS") instead of over the estimated lives of
the assets, (3) syndication costs are carried at their original value, instead
of being amortized over the estimated life of assets, and (4) income is recorded
at the partnership level based on the partnership agreement and the Internal
Revenue Code instead of being recorded based on the percentage of ownership
interest.
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or losses and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
F-11
<PAGE> 358
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
Depreciation
Depreciation is provided in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property. Under generally
accepted accounting principles, the cost of depreciable assets would be
allocated systematically over their estimated useful lives.
Other Assets
Other assets at December 31, 1997 include deferred loan costs of $111,612
which are amortized over the term of the related borrowing. Deferred costs are
shown net of accumulated amortization. Also included in other assets at December
31, 1997 are syndication costs of $194,045 which are not amortized.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers cash and
highly liquid investments, with an original maturity of three months or less
when purchased, to be cash and cash equivalents.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 were $98,611 and consist of
a reserve escrow established with a portion of the proceeds of the loan. The
funds are used for certain repair work, debt service, expenses and property
taxes or insurance. The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of the loan.
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
First mortgage note payable in monthly installments of
$33,623, including interest at 7.83%, due October 2003;
collateralized by land and buildings...................... $4,388,487
Second mortgage note payable in interest only monthly
installments of $928, at a rate of 7.83%, with principal
due October 2003; collateralized by land and buildings.... 142,290
----------
Principal balance at year end............................... 4,530,777
Less unamortized discount................................... (60,842)
----------
$4,469,935
==========
</TABLE>
Scheduled net principal payments of the mortgage notes during the years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 62,053
1999........................................................ 67,090
2000........................................................ 72,536
2001........................................................ 78,424
2002........................................................ 84,789
Thereafter.................................................. 4,165,885
----------
$4,530,777
==========
</TABLE>
F-12
<PAGE> 359
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of payment or the present value of the excess of interest
which would be incurred at the stated rate under the notes over the interest
which would be incurred at the Treasury constant maturity for U.S. Government
obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership and the Project Partnership have no administrative or
management employees and are dependent on the general partners for the
management and administration of all partnership activities. The Project
Partnership is obligated to pay a property management fee equal to 5% of gross
monthly collections. In addition to the management fee, the partnership
agreement provides for payments to general partners of a partnership
administration fee and reimbursement of certain expenses incurred by general
partners on behalf of the Partnership and the Project Partnership.
Transactions with the General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
1997
TYPE OF TRANSACTION AMOUNT
------------------- -------
<S> <C>
Property management fee..................................... $65,846
Reimbursement for services to affiliates.................... $29,742
Construction oversight reimbursements....................... $ 3,456
</TABLE>
For the period from January 19, 1996, to August 31, 1997 the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the General Partner. An affiliate of the General Partner
acquired, in the acquisition of a business, certain financial obligations from
an insurance agency which was later acquired by the agent who placed the master
policy. The agent assumed the financial obligations to the affiliate of the
General Partner, who receives payments on these obligations from the agent. The
amount of the Partnership's insurance premiums accruing to the benefit of the
affiliate of the General Partner by virtue of the agent's obligations was not
significant.
F-13
<PAGE> 360
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-14
<PAGE> 361
INDEPENDENT AUDITORS' REPORT
General Partners
Baywood Partners, Limited:
We have audited the consolidated statement of assets, liabilities and
partners' deficit -- income tax basis of Baywood Partners, Limited (a limited
partnership) and its limited partnership interest as of December 31, 1996, and
the related consolidated statements of revenues and expenses and changes in
partners' deficit -- income tax basis and cash flows -- income tax basis for the
year then ended. These consolidated financial statements are the responsibility
of the partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note A, these consolidated financial statements were
prepared on the basis of accounting Baywood Partners, Limited uses for Federal
income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Baywood
Partners, Limited and its limited partnership interest as of December 31, 1996,
and the results of their operations and their cash flows for the year then
ended, on the basis of accounting described in Note A.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 17, 1997
F-15
<PAGE> 362
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT --
INCOME TAX BASIS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 476,395
Restricted -- tenant security deposits.................... 33,490
Accounts receivable......................................... 7,199
Escrow for taxes and insurance.............................. 52,064
Restricted escrows (Note B)................................. 94,558
Other assets................................................ 346,115
Investment properties (Note C):
Land........................................................ 260,000
Buildings and related personal property..................... 4,490,428
-----------
4,750,428
Less accumulated depreciation............................... (3,169,691)
-----------
1,580,737
-----------
$ 2,590,558
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 33,019
Tenant security deposits.................................. 33,490
Accrued taxes............................................. --
Other liabilities......................................... 45,507
Mortgage notes payable (Note C)........................... 4,518,594
Partners' deficit........................................... (2,040,052)
-----------
$ 2,590,558
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-16
<PAGE> 363
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN
PARTNERS' DEFICIT -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenues:
Rental income............................................. $ 1,253,668
Other income.............................................. 71,878
-----------
Total revenues.................................... 1,325,546
-----------
Expenses:
Operating (Note D)........................................ 419,654
General and administrative (Note D)....................... 50,012
Maintenance............................................... 171,044
Depreciation.............................................. 83,953
Interest.................................................. 389,778
Property taxes............................................ 42,216
-----------
Total expenses.................................... 1,156,657
-----------
Net income.................................................. 168,889
Distributions to partners................................... (50,352)
Partners' deficit at beginning of year...................... (2,158,589)
-----------
Partners' deficit at end of year............................ $(2,040,052)
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-17
<PAGE> 364
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 168,889
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 83,953
Amortization of discounts and loan costs............... 29,113
Change in accounts:
Restricted cash...................................... (1,800)
Accounts receivable.................................. (5,036)
Escrow for taxes and insurance....................... (4,296)
Accounts payable..................................... 16,195
Tenant security deposit liabilities.................. 1,800
Accrued taxes........................................ (44,963)
Other liabilities.................................... 6,784
---------
Net cash provided by operating activities......... 250,639
---------
Cash flows from investing activities:
Property improvements and replacements.................... (185,423)
Changes in restricted escrows............................. 61,984
---------
Net cash used in investing activities............. (123,439)
---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (53,085)
Distributions to partners................................. (50,352)
---------
Net cash used in financing activities............. (103,437)
---------
Net increase (decrease) in cash............................. 23,763
Cash and cash equivalents at beginning of year.............. 452,632
---------
Cash and cash equivalents at end of year.................... $ 476,395
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 361,532
=========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-18
<PAGE> 365
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated financial statements include the accounts of Baywood
Partners, Limited (the "Partnership"), and its Limited Partnership interest in
Baywood Apartments (the "Project Partnership"). The Partnership was organized
solely to invest in the Project Partnership. The Project Partnership owns and
operates a 226 unit apartment complex located in Jefferson Parish, Louisiana.
The Partnership was organized as an Alabama limited partnership on February
15, 1979. The General Partner of the Partnership is Angeles Properties, Inc.
("API"), which acts as a general partner in other limited partnerships and is an
affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner
of the Project Partnership. Pursuant to the terms of the Agreement and Amended
Certificate of Limited Partnership (the "Agreement"), API has contributed
$100,000 to the Partnership for which it is entitled to a 1% operating interest
in the profits, losses, credits and cash distributions of the Partnership.
Capital contributions of the limited partners aggregated $1,936,200.
Pursuant to the terms of the Agreement, the limited partners will receive a 99%
interest in the operating profits, losses, credits and cash distributions of the
Partnership.
The Partnership had made capital contributions of $1,442,000 to the Project
Partnership and is entitled to a 99% interest in the operating profits, losses,
credits and cash distributions of the Project Partnership. AIPI is entitled to
the remaining 1% of the same.
Basis of Accounting
The consolidated financial statements are prepared on the basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The consolidated financial
statements represent the combination of both the Partnership and Project
Partnership's tax returns. The tax basis used differs from GAAP primarily
because on the tax basis (1) certain rental income received in advance is
recorded as income in the year received rather than in the year earned, (2)
buildings and related personal property are depreciated using the lives
specified under the accelerated cost recovery system ("ACRS") or the modified
accelerated cost recovery system ("MACRS") instead of over the estimated lives
of the assets, (3) syndication costs are carried at their original value,
instead of being amortized over the estimated life of assets, and (4) income is
recorded at the partnership level based on the partnership agreement and the
Internal Revenue Code instead of being recorded based on the percentage of
ownership interest.
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
F-19
<PAGE> 366
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
Depreciation
Depreciation is provided in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property. Under generally
accepted accounting principles, the cost of depreciable assets would be
allocated systematically over their estimated useful lives.
Other Assets
Other assets at December 31, 1996 include deferred loan costs of $131,024
which are amortized over the term of the related borrowing. Deferred costs are
shown net of accumulated amortization. Also included in other assets at December
31, 1996 are syndication costs of $194,045 which are not amortized.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1996 were $94,558 and consist of
a reserve escrow established with a portion of the proceeds of the loan. The
funds are used for certain repair work, debt service, expenses and property
taxes or insurance. The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of the loan.
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
First mortgage note payable in monthly installments of
$33,623, including interest at 7.83%, due October 2003;
collateralized by land and buildings...................... $4,445,882
Second mortgage note payable in interest only monthly
installments of $928, at a rate of 7.83%, with principal
due October 2003; collateralized by land and buildings.... 142,290
----------
Principal balance at year end............................... 4,588,172
Less unamortized discount................................... (69,578)
----------
$4,518,594
==========
</TABLE>
Scheduled net principal payments of the mortgage notes during the years
subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 57,394
1998........................................................ 62,053
1999........................................................ 67,090
2000........................................................ 72,536
2001........................................................ 78,424
Thereafter.................................................. 4,250,675
----------
$4,588,172
==========
</TABLE>
F-20
<PAGE> 367
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to October 15, 1996. Thereafter the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of payment or the present value of the excess of
interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership and the Project Partnership have no administrative or
management employees and are dependent on the general partners for the
management and administration of all partnership activities. The Project
Partnership is obligated to pay a property management fee equal to 5% of gross
monthly collections. In addition to the management fee, the partnership
agreement provides for payments to general partners of a partnership
administration fee and reimbursement of certain expenses incurred by general
partners on behalf of the Partnership and the Project Partnership.
Transactions with the General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
1996
TYPE OF TRANSACTION AMOUNT
------------------- -------
<S> <C>
Property management fee..................................... $64,690
Reimbursement for services to affiliates.................... $28,914
Construction fee............................................ $ 4,916
Reimbursement for oversight costs........................... $17,784
</TABLE>
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the General Partner. An affiliate of the
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the financial
obligations to the affiliate of the General Partner, who receives payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums accruing to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations is not significant.
F-21
<PAGE> 368
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-22
<PAGE> 369
INDEPENDENT AUDITORS' REPORT
General Partners
Baywood Partners, Limited:
We have audited the consolidated statements of assets, liabilities and
partners' deficit -- income tax basis of Baywood Partners, Limited (a limited
partnership) and its limited partnership interest as of December 31, 1995 and
1994, and the related consolidated statements of revenues and expenses and
changes in partners' deficit -- income tax basis and cash flows -- income tax
basis for the years then ended. These consolidated financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note A, these consolidated financial statements were
prepared on the basis of accounting Baywood Partners, Limited uses for Federal
income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Baywood
Partners, Limited and its limited partnership interest as of December 31, 1995
and 1994, and the results of their operations and their cash flows for the years
then ended, on the basis of accounting described in Note A.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 22, 1996
F-23
<PAGE> 370
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT --
INCOME TAX BASIS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 452,632 $ 604,724
Restricted-tenant security deposits....................... 31,690 31,090
Accounts receivable......................................... 2,163 2,718
Escrow for taxes............................................ 47,768 44,035
Restricted escrows (Note B)................................. 156,542 279,242
Other assets................................................ 367,173 388,231
Investment properties (Note C):
Land...................................................... 260,000 260,000
Buildings and related personal property................... 4,305,005 4,076,146
----------- -----------
4,565,005 4,336,146
Less accumulated depreciation............................. (3,085,738) (2,924,559)
----------- -----------
1,479,267 1,411,587
----------- -----------
$ 2,537,235 $ 2,761,627
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 16,824 $ 129,201
Tenant security deposits.................................. 31,690 33,207
Accrued taxes............................................. 44,963 --
Other liabilities......................................... 38,723 35,571
Mortgage notes payable (Note C)........................... 4,563,624 4,605,295
Partners' deficit........................................... (2,158,589) (2,041,647)
----------- -----------
$ 2,537,235 $ 2,761,627
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-24
<PAGE> 371
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN
PARTNERS' DEFICIT -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,227,468 $ 1,121,158
Other income.............................................. 70,406 116,372
----------- -----------
Total revenues.................................... 1,297,874 1,237,530
----------- -----------
Expenses:
Operating................................................. 221,178 311,482
General and administrative (Note D)....................... 42,841 47,220
Property management fees (Note D)......................... 64,085 60,562
Maintenance............................................... 233,885 246,043
Depreciation.............................................. 161,178 113,527
Interest.................................................. 394,004 383,204
Property taxes............................................ 45,132 45,372
----------- -----------
Total expenses.................................... 1,162,303 1,207,410
----------- -----------
Loss on disposition of property............................. -- (9,372)
----------- -----------
Net income.................................................. 135,571 20,748
Distributions to partners................................... (252,513) --
Partners' deficit at beginning of year...................... (2,041,647) (2,062,395)
----------- -----------
Partners' deficit at end of year............................ $(2,158,589) $(2,041,647)
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-25
<PAGE> 372
BAYWOOD PARTNERS, LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 135,571 $ 20,748
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 161,178 113,527
Amortization of discounts and loan costs............... 28,486 34,108
Loss on disposition of property........................ -- 9,372
Change in accounts:
Restricted cash...................................... (600) (7,425)
Accounts receivable.................................. 555 (1,210)
Escrow for taxes..................................... (3,733) 2,049
Other assets......................................... -- (11,290)
Accounts payable..................................... (112,377) 123,406
Tenant security deposit liabilities.................. (1,517) 9,542
Accrued taxes........................................ 44,963 (48,771)
Other liabilities.................................... 3,152 8,952
--------- ---------
Net cash provided by operating activities......... 255,678 253,008
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (228,858) (163,993)
Changes in restricted escrows............................. 122,700 142,124
--------- ---------
Net cash used in investing activities............. (106,158) (21,869)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (49,099) (45,414)
Distributions to partners................................. (252,513) --
--------- ---------
Net cash used in financing activities............. (301,612) (45,414)
--------- ---------
Net (decrease) increase in cash............................. (152,092) 185,725
Cash and cash equivalents at beginning of year.............. 604,724 418,999
--------- ---------
Cash and cash equivalents at end of year.................... $ 452,632 $ 604,724
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 365,518 $ 340,319
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-26
<PAGE> 373
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1995 AND 1994
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated financial statements include the accounts of Baywood
Partners, Limited (the "Partnership"), and its Limited Partnership interest in
Baywood Apartments (the "Project Partnership"). The Partnership was organized
solely to invest in the Project Partnership. The Project Partnership owns and
operates a 226 unit apartment complex located in Jefferson Parish, Louisiana.
The Partnership was organized as an Alabama limited partnership on February
15, 1979. The General Partner of the Partnership is Angeles Properties, Inc.
("API"), which acts as a general partner in other limited partnerships and is an
affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner
of the Project Partnership. Pursuant to the terms of the Agreement and Amended
Certificate of Limited Partnership (the "Agreement"), API has contributed
$100,000 to the Partnership for which it is entitled to a 1% operating interest
in the profits, losses, credits and cash distributions of the Partnership.
Capital contributions of the limited partners aggregated $1,936,200.
Pursuant to the terms of the Agreement, the limited partners will receive a 99%
interest in the operating profits, losses, credits and cash distributions of the
Partnership.
The Partnership had made capital contributions of $1,442,000 to the Project
Partnership and is entitled to a 99% interest in the operating profits, losses,
credits and cash distributions of the Project Partnership. AIPI is entitled to
the remaining 1% of the same.
Basis of Accounting
The consolidated financial statements are prepared on the basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The consolidated financial
statements represent the combination of both the Partnership and Project
Partnership's tax returns. The tax basis used differs from GAAP primarily
because on the tax basis (1) certain rental income received in advance is
recorded as income in the year received rather than in the year earned, (2)
buildings and related personal property are depreciated using the lives
specified under the accelerated cost recovery system ("ACRS") or the modified
accelerated cost recovery system ("MACRS") instead of over the estimated lives
of the assets, (3) syndication costs are carried at their original value,
instead of being amortized over the estimated life of assets, and (4) subsidiary
income is recorded at the partnership level based on the partnership agreement
and the Internal Revenue Code instead of being recorded based on the percentage
of ownership interest.
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
F-27
<PAGE> 374
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
Depreciation
Depreciation is provided for in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property. Under generally
accepted accounting principles, the cost of depreciable assets would be
allocated systematically over their estimated useful lives.
Other Assets
Other assets at December 31, 1995 and 1994 include deferred loan costs
which are amortized over the term of the related borrowing. They are shown net
of accumulated amortization. Also included in other assets at December 31, 1995
and 1994 are $194,045 of syndication costs which are not amortized.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers cash and
all highly liquid investments, with an original maturity of three months or less
when purchased, to be cash and cash equivalents.
Reclassifications
Certain 1994 amounts have been reclassified to conform to the 1995
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the loan were placed into a capital improvement reserve
account to be used for certain capital improvements. The
capital improvements are anticipated to be completed in
calendar year 1996 and any excess funds will be returned
for property operations................................... $ 65,883 $187,808
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. 90,659 91,434
-------- --------
$156,542 $279,242
======== ========
</TABLE>
F-28
<PAGE> 375
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$33,623, including interest at 7.83%, due October 2003;
collateralized by land and buildings...................... $4,498,967 $4,548,066
Second mortgage note payable in interest only monthly
installments of $928, at a rate of 7.83%, with principal
due October 2003; collateralized by land and buildings.... 142,290 142,290
---------- ----------
Principal balance at year end............................... 4,641,257 4,690,356
Less unamortized discount................................... (77,633) (85,061)
---------- ----------
$4,563,624 $4,605,295
========== ==========
</TABLE>
Scheduled net principal payments of the mortgage notes during the years
subsequent to December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 53,085
1997........................................................ 57,394
1998........................................................ 62,053
1999........................................................ 67,090
2000........................................................ 72,536
Thereafter.................................................. 4,329,099
----------
$4,641,257
==========
</TABLE>
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to October 15, 1996. Thereafter the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of payment or the present value of the excess of
interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations.
F-29
<PAGE> 376
BAYWOOD PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership and the Project Partnership have no administrative or
management employees and are dependent on the general partners for the
management and administration of all partnership activities. The Project
Partnership is obligated to pay a property management fee equal to 5% of gross
monthly collections. In addition to the management fee, the partnership
agreement provides for payments to general partners of a partnership
administration fee and reimbursement of certain expenses incurred by general
partners on behalf of the Partnership and the Project Partnership.
Transactions with the General Partner and its affiliates are as follows:
<TABLE>
<CAPTION>
1995 1994
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- ------- -------
<S> <C> <C>
Property management fee..................................... $64,085 $60,562
Reimbursement for services to affiliates.................... $23,475 $25,620
Construction fee............................................ $17,784 $ --
</TABLE>
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the General Partner. An affiliate of the
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the financial
obligations to the affiliate of the General Partner, who receives payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums accruing to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations is not significant.
F-30
<PAGE> 377
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 378
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 379
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 380
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
BRAMPTON ASSOCIATES PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 381
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Brampton
Associates Partnership..................... S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-61
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-62
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
CONFLICTS OF INTEREST.......................... S-71
Conflicts of Interest with Respect to the
Offer...................................... S-71
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-71
Competition Among Properties................. S-71
Features Discouraging Potential Takeovers.... S-71
Future Exchange Offers....................... S-71
YOUR PARTNERSHIP............................... S-72
General...................................... S-72
Your Partnership and its Property............ S-72
</TABLE>
i
<PAGE> 382
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-72
Investment Objectives and Policies; Sale or
Financing of Investments................... S-72
Capital Replacement.......................... S-72
Borrowing Policies........................... S-73
Competition.................................. S-73
Legal Proceedings............................ S-73
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-75
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
Distributions and Transfers of Units......... S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-78
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-79
LEGAL MATTERS.................................. S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 383
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Brampton Associates Partnership. For each unit that you tender, you may
choose to receive of our Tax-Deferral % Partnership
Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred to as "Common
OP Units"), or $ in cash (subject, in each case to adjustment for
any distributions paid to you during the offer period). If you like, you
can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 384
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 385
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $2,760.04 per unit for the six
months ended June 30, 1998 (equivalent to $5,520.08 on an annualized
basis.) We will pay fixed quarterly distributions of $ per
unit on the Tax-Deferral % Preferred OP Units before any distributions
are paid to holders of Tax-Deferral Common OP Units. We pay quarterly
distributions on the Tax-Deferral Common OP Units based on our funds from
operations for that quarter. For the six months ended June 30, 1998, we
paid distributions of $1.125 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). This is equivalent to
distributions of $ per year on the number of Tax-Deferral %
Preferred OP Units or distributions of $ per year on the number
of Tax-Deferral Common OP Units that you would receive in an exchange for
each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income
S-3
<PAGE> 386
tax purposes, as a partial sale of such units for cash, and as a partial
tax-free contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
S-4
<PAGE> 387
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
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Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
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activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least 66 2/3% of the units of your partnership.
In the absence of such consent, your only option for liquidation of your
investment would be to sell your units in a private transaction. Any such
sale could be at a very substantial discount from your pro rata share of
the fair market value of your partnership's property and might involve
significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership may require funding from its partners. Continuation of its
operations may be dependent on additional funding from partners or from
other sources. Your partnership faces maturity or balloon payment dates on
its mortgage loans and must either obtain refinancing or sell its property.
If your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. In addition, continuation of your
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partnership without the offer would deny you and your partners the benefits
that your general partner expects to result from the offer. For example, a
partner of your partnership would have no opportunity for liquidity unless
he were to sell his units in a private transaction. Any such sale would
likely be at a very substantial discount from the partner's pro rata share
of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
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For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
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<PAGE> 397
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY
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<PAGE> 398
BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR
TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED
TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN
THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO
STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND
OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO
YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This represents the closing price of AIMCO's Class A
Common Stock on the NYSE on a recent date before we commenced this offer.
S-16
<PAGE> 399
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
S-17
<PAGE> 400
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives such
compensation as is set forth in your partnership's agreement of limited
partnership or in other agreements executed between the general partner and your
partnership that are permitted by your partnership's agreement of limited
partnership and may also receive reimbursement for expenses generated in its
capacity as general partner of your partnership. The property manager received
management fees of $81,698 in 1996, $92,384 in 1997 and $46,023 for the first
six months of 1998. We have no current intention of changing the fee structure
for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Brampton Associates Partnership is a
Connecticut limited partnership which was formed on December 31, 1985 for the
purpose of owning and operating a single apartment property located in Cary,
North Carolina, known as "Brampton Moors Apartments." In 1985, it completed a
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<PAGE> 401
private placement of units. Brampton Moors Apartments consists of 224 apartment
units. Your partnership has no employees.
Property Management. Since December 1996, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2040, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $7,438,225, payable to First Union and
Lehman, which bears interest at a rate of 8.47%. The mortgage debt is due in
June 2004. Your partnership's agreement of limited partnership also allows your
general partner to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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<PAGE> 402
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 403
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) 23,764 14,453 12,513
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 404
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 405
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 406
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 407
SUMMARY FINANCIAL INFORMATION OF BRAMPTON ASSOCIATES PARTNERSHIP
The summary financial information of Brampton Associates Partnership for
the six months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Brampton Associates Partnership for the years ended December 31,
1997, 1996, 1995, 1994 and 1993 is based on financial statements. This
information should be read in conjunction with such financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Your Partnership" included
herein. See "Index to Financial Statements."
BRAMPTON ASSOCIATES PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............... 887,276 889,937 1,839,610 1,768,692 1,780,701 0 0
Net Income/(Loss)............ (33,415) 29,158 (27,197) (282,970) (161,509) 0 0
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation... 4,084,686 4,384,457 4,231,250 4,541,896 4,831,198 0 0
Total Assets................. 5,416,740 6,327,699 5,646,487 5,839,743 6,123,150 0 0
Mortgage Notes Payable,
including Accrued
Interest................... 7,473,467 7,530,090 7,472,082 7,020,157 7,071,360 0 0
Partners'
Capital/(Deficit).......... (2,174,471) (1,279,962) (1,991,055) (1,313,858) (1,030,889) 0 0
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- --------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding.................... $1.125 $1.85 $2,760.04 Not available
</TABLE>
S-25
<PAGE> 408
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, AIMCO was the largest owner and manager of multifamily
apartment properties in the United States with a total portfolio of 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. However, your general partner believes that the terms of our offer,
including the offer consideration, are fair to you. We have retained Stanger to
conduct an analysis of our offer and to render an opinion as to the fairness to
you of our cash offer consideration, from a financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 409
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights, title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 410
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June 30, 1998 were $2,760.04 per unit (equivalent
to $5,520.08 on an annualized basis). This is equivalent to distributions of
$ per year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common OP
Units, that you would receive in an exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
S-28
<PAGE> 411
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for
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investment, business, personal or other purposes, at their option. If your
partnership were to sell its assets and liquidate, you and your partners would
not need to rely upon capitalization of income or other valuation methods to
estimate the fair market value of your partnership's assets. Instead, such
assets would be valued through negotiations with prospective purchasers (in many
cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least 66 2/3% of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership may require funding from its partners. Continuation of
its operations may be dependent on additional funding from partners or from
other sources. Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
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- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units. However, one
class of outstanding Partnership Preferred Units has prior distribution
rights and the Tax-Deferral % Preferred OP Units rank equal to six
other outstanding classes of Partnership Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If AIMCO Operating
Partnership acquires units in the offer, AIMCO will increase its ability to
influence voting decisions with respect to your partnership. Furthermore, in the
event that the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, removal of the general partner of your partnership
(which general partner is controlled by AIMCO) without AIMCO's consent may
become more difficult or impossible. AIMCO also owns the company that manages
your partnership's property. In the event that the AIMCO Operating Partnership
acquires a substantial number of units pursuant to the offer, removal of the
property manager may become more difficult or impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
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The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
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Voting Rights
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Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
\ With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
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Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
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Liquidity and Transferability/Redemption
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There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
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ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
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CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash Consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25, and distributions with respect to your units for
the six months ended June 30, 1998 were $2,760.04 (equivalent to $5,520.08
on an annualized basis). This is equivalent to distributions of $
per year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common
OP Units, that you would receive in exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to
your units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
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Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also
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performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information
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contained in this Prospectus Supplement or that were provided, made
available, or otherwise communicated to Stanger by your partnership, AIMCO, or
the management of the partnership's property. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of your partnership. Stanger relied upon the representations of
your partnership and AIMCO concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, the determination and valuation of non-real
estate assets and liabilities of your partnership, the allocation of your
partnership's net values between the general partner, special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
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COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Connecticut law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Brampton Moors Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash Receipts (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2040. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed for the purpose of The purpose of the AIMCO Operating Partnership is to
acquiring, owning, developing and operating your conduct any business that may be lawfully conducted by
partnership's property. Subject to restrictions a limited partnership organized pursuant to the
contained in your partnership's agreement of limited Delaware Revised Uniform Limited Partnership Act (as
partnership, your partnership may perform any acts to amended from time to time, or any successor to such
accomplish the foregoing including, without limitation, statute) (the "Delaware Limited Partnership Act"),
borrowing funds and creating liens. provided that such business is to be conducted in a
manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 53,875 units for cash time to the limited partners and to other persons, and
and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set for your partnership's agreement of partners, on terms and conditions and for such capital
limited partnership. The capital contribution need not contributions as may be established by the general
be equal for all limited partners and no action or partner in its sole discretion. The net capital
consent is required in connection with the admission of contribution need not be equal for all OP Unitholders.
any additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Your partnership may employ from time to time The AIMCO Operating Partnership may lend or contribute
affiliates or limited partners for the operation, funds or other assets to its subsidiaries or other
management, supervision, maintenance, sale or financing persons in which it has an equity investment, and such
of your partnership's property on such terms and for persons may borrow funds from the AIMCO Operating
such compensation as the general partner may determine. Partnership, on terms and conditions established in the
The general partner of your partnership, its affiliates sole and absolute discretion of the general partner. To
and any limited partner may make loans to your the extent consistent with the business purpose of the
partnership. Such loans must be evidenced by unsecured AIMCO Operating Partnership and the permitted
promissory notes of your partnership, bearing interest activities of the general partner, the AIMCO Operating
at a rate which is the lesser of 1% per annum in excess Partnership may transfer assets to joint ventures,
of the prime commercial lending rate of Chemical Bank, limited liability companies, partnerships,
New York, New York or such other major New York bank corporations, business trusts or other business
designated by the general partner or the maximum rate entities in which it is or thereby becomes a
permitted by law. Repayment of such loans are participant upon such terms and subject to such
subordinated to the prior payment of all other conditions consistent with the AIMCO Operating Part-
partnership obligations and expenses, except nership Agreement and applicable law as the general
distributions to the partners, and will be repaid out partner, in its sole and absolute discretion, believes
of, and be considered a first charge on, Net Cash to be advisable. Except as expressly permitted by the
Receipts or capital contributions of the limited AIMCO Operating Partnership Agreement, neither the
partners. general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to finance all or any of the activities of your restrictions on borrowings, and the general partner has
partnership authorized under the provisions of your full power and authority to borrow money on behalf of
partnership's agreement of limited partnership by the AIMCO Operating Partnership. The AIMCO Operating
secured or unsecured indebtedness, with or without Partnership has credit agreements that restrict, among
recourse, and, in connection therewith, issue evidences other things, its ability to incur indebtedness. See
of indebtedness and execute and deliver notes, "Risk Factors -- Risks of Significant Indebtedness" in
mortgages, mortgage deeds and other security the accompanying Prospectus.
instruments of every nature and kind as security there-
fore. However, if the opinion of counsel is obtained
that the following action does not constitute control
of your partnership by the limited partners or will
result in the treatment of your partnership as an
association for tax purposes, the consent of the
limited partners holding 66 2/3% of the outstanding
units is required to refinance or mortgage all or
substantially all of your partnership's property. Such
consent will be presumed unless the general
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
partner receives a written notice from a limited
partner withholding its consent within 30 days of the
notice to the limited partners regarding the
transaction. If an opinion of counsel cannot be
obtained, the consent of the limited partners will not
be required.
</TABLE>
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
provides that the books and records of your partnership with a statement of the purpose of such demand and at
are available for reasonable inspection and examination such OP Unitholder's own expense, to obtain a current
by the partners or their duly authorized agents at the list of the name and last known business, residence or
principal place of business of your partnership. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
Subject to the provisions of your partnership's All management powers over the business and affairs of
agreement of limited partnership, the general partner the AIMCO Operating Partnership are vested in AIMCO-GP,
of your partnership has the sole and full authority and Inc., which is the general partner. No OP Unitholder
power to carry on the business of your partnership, has any right to participate in or exercise control or
including the execution of all contracts and documents management power over the business and affairs of the
on behalf of and in the name of your partnership. No AIMCO Operating Partnership. The OP Unitholders have
limited partner may take part in or interfere in any the right to vote on certain matters described under
manner with, the conduct or control or your partnership "Comparison of Ownership of Your Units and AIMCO OP
business nor does any limited partner have any right or Units -- Voting Rights" below. The general partner may
authority to act on behalf of or bind your partnership. not be removed by the OP Unitholders with or without
cause.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner has no liability to the AIMCO Operating Partnership Agreement, the general
your partnership or to any partner for any loss partner is not liable to the AIMCO Operating
suffered by your partnership or any partner which Partnership for losses sustained, liabilities incurred
arises out of any action or inaction of the general or benefits not derived as a result of errors in
partner if the general partner determines, in good judgment or mistakes of fact or law of any act or
faith, such course of conduct was in the best interests omission if the general partner acted in good faith.
of your partnership and such course of conduct did not The AIMCO Operating Partnership Agreement provides for
constitute negligence or misconduct of the general indemnification of AIMCO, or any director or officer of
partner. In addition, your partnership will indemnify AIMCO (in its capacity as the previous general partner
the general partner and its affiliates against any of the AIMCO Operating Partnership), the general
losses, judgments, liabilities, expenses and amounts partner, any officer or director of general partner or
paid in settlement, sustained by it in connection with the AIMCO Operating Partnership and such other persons
your partnership, provided that the general partner as the general partner may designate from and against
determines that such course of conduct was in the best all losses, claims, damages, liabilities, joint or
interests of your partnership and that such course of several, expenses (including legal fees), fines,
conduct did not constitute negligence or misconduct on settlements and other amounts incurred in connection
the part of the general
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
partner or its affiliates. Notwithstanding the with any actions relating to the operations of the
foregoing, the general partner and its affiliates, AIMCO Operating Partnership, as set forth in the AIMCO
acting as broker-dealers will not be indemnified for Operating Partnership Agreement. The Delaware Limited
any losses, liabilities or expenses arising under the Partnership Act provides that subject to the standards
Federal or states securities laws unless: (1) there has and restrictions, if any, set forth in its partnership
been a successful adjudication on the merits of each agreement, a limited partnership may, and shall have
count involving alleged securities law violations, (2) the power to, indemnify and hold harmless any partner
such claims have been dismissed with prejudice on the or other person from and against any and all claims and
merits by a court of jurisdiction or (3) a court of demands whatsoever. It is the position of the
competent jurisdiction approves a settlement of such Securities and Exchange Commission that indemnification
claims. In such claim for indemnification for Federal of directors and officers for liabilities arising under
or state securities law violations, the party seeking the Securities Act is against public policy and is
indemnification must place before the court the unenforceable pursuant to Section 14 of the Securities
position of the SEC and any other applicable regulatory Act of 1933.
agency with respect of the issue of indemnification for
securities law violations.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, if the opinion of counsel is obtained that has exclusive management power over the business and
the following actions do not constitute control of your affairs of the AIMCO Operating Partnership. The general
partnership by the limited partners or result in the partner may not be removed as general partner of the
treatment of your partnership as an association for tax AIMCO Operating Partnership by the OP Unitholders with
purposes, the general partner of your partnership may or without cause. Under the AIMCO Operating Partnership
be removed upon the written consent or affirmative vote Agreement, the general partner may, in its sole
of the limited partners owning a majority of discretion, prevent a transferee of an OP Unit from
outstanding units and the general partner may withdraw becoming a substituted limited partner pursuant to the
from your partnership with the consent of a majority in AIMCO Operating Partnership Agreement. The general
interest of the limited partners. If an opinion of partner may exercise this right of approval to deter,
counsel cannot be obtained, the consent of the limited delay or hamper attempts by persons to acquire a
partners for the withdrawal of the general partner from controlling interest in the AIMCO Operating Partner-
your partnership will not be required. A limited ship. Additionally, the AIMCO Operating Partnership
partner may not transfer his interests in your Agreement contains restrictions on the ability of OP
partnership without the consent of the general partner, Unitholders to transfer their OP Units. See
which may be granted or withheld in its sole "Description of OP Units -- Transfers and Withdrawals"
discretion. in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
If the opinion of counsel is obtained that the With the exception of certain circumstances set forth
following action does not constitute control of your in the AIMCO Operating Partnership Agreement, whereby
partnership by the limited partners or result in the the general partner may, without the consent of the OP
treatment of your partnership as an association for tax Unitholders, amend the AIMCO Operating Partnership
purposes, the limited partners holding 66 2/3% of the Agreement, amendments to the AIMCO Operating
then outstanding units may amend your partnership's Partnership Agreement require the consent of the
agreement of limited partnership. However, any holders of a majority of the outstanding Common OP
amendment which adversely affects the rights of a Units, excluding AIMCO and certain other limited
partner may not be made without the consent of the exclusions (a "Majority in Interest"). Amendments to
affected partner. Additionally, no amendment may be the AIMCO Operating Partnership Agreement may be
made which alters or modifies the distributions proposed by the general partner or by holders of a
allocable to each partner, adversely affects the Majority in Interest. Following such proposal, the
classification of your partnership as a partnership for general partner will submit any proposed amendment to
Federal tax purposes or increases the potential Federal the OP Unitholders. The general partner will seek the
tax liabilities of any partner. Any amendment which written consent of the OP Unitholders on the proposed
modifies the voting requirement of any section of your amendment or will call a meeting to vote thereon. See
partnership's agreement of limited partnership must be "Description of OP Units -- Amendment of the AIMCO
approved by all limited partners. The general partner Operating Partnership Agreement" in the accompanying
may amend your partnership's agreement of limited Prospectus.
partnership necessary to reflect any changes which the
general partner feels is necessary or advisable to
preserve the tax status of your partnership as a
partnership and any other change of a technical or
ministerial nature which does not materially adversely
affect the rights of or increase the obligations of the
limited partners.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives such compensation as is set forth in your capacity as general partner of the AIMCO
partner-
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ship's agreement of limited partnership or in other Operating Partnership. In addition, the AIMCO Operating
agreements executed between the general partner and Partnership is responsible for all expenses incurred
your partnership that are permitted by your relating to the AIMCO Operating Partnership's ownership
partnership's agreement of limited partnership. of its assets and the operation of the AIMCO Operating
Moreover, the general partner or certain affiliates may Partnership and reimburses the general partner for such
be entitled to compensation for additional services expenses paid by the general partner. The employees of
rendered. the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, the liability of any limited partner to negligence, no OP Unitholder has personal liability for
provide funds or any other property to your partnership the AIMCO Operating Partnership's debts and
is limited to the amount of capital contributions, plus obligations, and liability of the OP Unitholders for
any accrued interest thereon, which such limited the AIMCO Operating Partnership's debts and obligations
partner is required to make pursuant to your is generally limited to the amount of their invest-
partnership's agreement of limited partnership. Subject ment in the AIMCO Operating Partnership. However, the
to applicable law, the limited partners have no further limitations on the liability of limited partners for
liability to contribute money to your partnership for, the obligations of a limited partnership have not been
or in respect of, the liabilities or obligations of clearly established in some states. If it were
your partnership, and will not be personally liable for determined that the AIMCO Operating Partnership had
any obligations of your partnership. However, if a been conducting business in any state without compli-
limited partner receives the return in whole or in part ance with the applicable limited partnership statute,
of its capital contribution it may be liable to your or that the right or the exercise of the right by the
partnership for any sum, not in excess of such return, holders of OP Units as a group to make certain
with interest, to the extent required by applicable amendments to the AIMCO Operating Partnership Agreement
law, necessary to discharge certain of your or to take other action pursuant to the AIMCO Operating
partnership's liabilities to creditors. Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Unless otherwise provided for in the relevant
provides that the general partner must use its best partnership agreement, Delaware law generally requires
efforts to cause your partnership to observe and a general partner of a Delaware limited partnership to
perform each and every obligation to be observed and adhere to fiduciary duty standards under which it owes
performed by your partnership under all agreements and its limited partners the highest duties of good faith,
undertakings made by your partnership or by which your fairness and loyalty and which generally prohibit such
partnership is bound and to do all things which may be general partner from taking any action or engaging in
necessary in order to conduct the affairs and business any transaction as to which it has a conflict of
of your partnership. The general partner must devote so interest. The AIMCO Operating Partnership Agreement
much of its time as the general partner, in its sole expressly authorizes the general partner to enter into,
discretion, deems necessary to manage the affairs of on behalf of the AIMCO Operating Partnership, a right
your partnership and use its best efforts to conduct of first opportunity arrangement and other conflict
the affairs of your partnership in accordance with your avoidance agreements with various affiliates of the
partnership's agreement of limited partnership and AIMCO Operating Partnership and the general partner, on
applicable laws. However, the general partner is not such terms as the general partner, in its sole and
obligated to use its own funds to pay for partnership absolute discretion, believes are advisable. The AIMCO
expenses and may retain, at the expense of your Operating Partnership Agreement expressly limits the
partnership, one or more of its affiliates or others to liability of the general partner by providing that the
supervise partnership activities. Each of the partners general partner, and its officers and directors will
and their affiliates may engage in or possess an not be liable or accountable in damages to the AIMCO
interest in other business ventures of any nature and Operating Partnership, the limited partners or
description, including, but not limited to, those assignees for errors in judgment or mistakes of fact or
competitive with the operations and business of your law or of any act or omission if the general partner or
partnership and the real estate business in all its such director or officer acted in good faith. See
phases, including, without limitation, ownership, "Description of OP Units -- Fiduciary Responsibilities"
operation, management, syndication and development of in the accompanying Prospectus.
real property and neither your partnership nor the
partners will have any rights in or to such independent
ventures or the income or profits derived therefrom.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and loss from the AIMCO Operating
Partnership can only be offset against other income and
loss from the AIMCO Operating Partnership). Income of
the AIMCO Operating Partnership, however, attributable
to dividends from the Management Subsidiaries (as
defined below) or interest paid by the Management
Subsidiaries does not qualify as passive activity
income and cannot be offset against losses from
"passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Voting Rights
<TABLE>
<S> <C> <C>
If the opinion of counsel is Except as otherwise required by Under the AIMCO Operating Partner-
obtained that the following actions applicable law or in the AIMCO ship Agreement, the OP Unitholders
does not constitute control of your Operating Partnership Agreement, have voting rights only with
partnership by the limited partners the holders of the Preferred OP respect to certain limited matters
or will not adversely affect your Units will have the same voting such as certain amendments and
partnership's classification as a rights as holders of the Common OP termination of the AIMCO Operating
partnership for tax purposes, the Units. See "Description of OP Partnership Agreement and certain
consent of the limited partners Units" in the accompanying transactions such as the
holding 66 2/3% of the out- Prospectus. So long as any institution of bankruptcy
standing units is required to Preferred OP Units are outstand- proceedings, an assignment for the
refinance, sell, exchange grant an ing, in addition to any other vote benefit of creditors and certain
option for sale, exchange, convey, or consent of partners required by transfers by the general partner of
mortgage, convey title to all or law or by the AIMCO Operating its interest in the AIMCO Operating
substantially all of your partner- Partnership Agreement, the Partnership or the admission of a
ship's property, which consent will affirmative vote or consent of successor general partner.
be presumed to be given unless holders of at least 50% of the
notice is received by the general outstanding Preferred OP Units will Under the AIMCO Operating Partner-
partner from the limited partner to be necessary for effecting any ship Agreement, the general partner
the contrary within thirty days of amendment of any of the provisions has the power to effect the
the notice of such transactions and of the Partnership Unit Desig- acquisition, sale, transfer,
amend your partnership's agree- nation of the Preferred OP Units exchange or other disposition of
ment of limited partnership. Such that materially and adversely any assets of the AIMCO Operating
consent is also required to amend affects the rights or preferences Partnership (including, but not
your partnership's agreement of of the holders of the Preferred OP limited to, the exercise or grant
limited partnership, subject to Units. The creation or issuance of of any conversion, option,
certain exceptions. Upon the any class or series of partnership privilege or subscription right or
satisfaction of the preceding units, including, without any other right available in
conditions, the limited partners limitation, any partnership units connection with any assets at any
holding a majority of the units may that may have rights senior or time held by the AIMCO Operating
remove the general partner and superior to the Preferred OP Units, Partnership) or the merger,
consent to the withdrawal of a shall not be deemed to materially consolidation, reorganization or
general partner. If opinion cannot adversely affect the rights or other combination of the AIMCO
be obtained, the general partner preferences of the holders of Operating Partnership with or into
may refinance your partnership's Preferred OP Units. With respect to another entity, all without the
property, withdraw from your the exercise of the above de- consent of the OP Unitholders.
partnership and amend your scribed voting rights, each
partnership's agreement of limited Preferred OP Units shall have one The general partner may cause the
partnership without the consent of (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating
the limited partners. An Partnership by an "event of
affirmative vote by holders of a withdrawal," as defined in the
majority of the outstanding units Delaware Limited Partnership Act
is necessary for your partnership (including, without limitation,
to engage in any business other bankruptcy), unless, within 90 days
than as set forth in your partner- after the withdrawal, holders of a
ship's agreement of limited "majority in interest," as defined
partnership. in the Delaware Limited Partnership
Act, agree in writing, in their
A general partner may cause the sole and absolute discretion, to
dissolution of your partnership by continue the business of the AIMCO
retiring when there is no remaining Operating Partnership and to the
general partner. In such event, all appointment of a successor general
of the limited partners may vote to partner. The general partner may
continue your partnership within 90 elect to dissolve the AIMCO
days of such retirement and may Operating Partnership in its sole
unanimously elect a substitute and absolute discretion, with or
general partner. without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Distributions
<TABLE>
<S> <C> <C>
The general partner of your Holders of Preferred OP Units will Subject to the rights of holders of
partnership annually distributes be entitled to receive, when and as any outstanding Preferred OP Units,
substantially all of your declared by the board of directors the AIMCO Operating Partnership
partnership's Net Cash Receipts of the general partner of the AIMCO Agreement requires the general
with each partner receiving their Operating Partnership, quarterly partner to cause the AIMCO
pro rata share in accordance with cash distributions at the rate of Operating Partnership to dis-
their ownership of units. Any $ per Preferred OP Unit; tribute quarterly all, or such
proceeds received from the sale or provided, however, that at any time portion as the general partner may
refinancing of your partnership's and from time to time on or after in its sole and absolute discretion
property will be distributed in the fifth anniversary of the issue determine, of Available Cash (as
accordance with your partnership's date of the Preferred OP Units, the defined in the AIMCO Operating
agreement of limited partnership. AIMCO Operating Partnership may Partnership Agreement) generated by
The distributions payable to the adjust the annual distribution rate the AIMCO Operating Partnership
partners are not fixed in amount on the Preferred OP Units to the during such quarter to the general
and depend upon the operating lower of (i) % plus the annual partner, the special limited
results and net sales or interest rate then applicable to partner and the holders of Common
refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date
the disposition of your of five years, and (ii) the annual established by the general partner
partnership's assets. Distributions dividend rate on the most recently with respect to such quarter, in
of Net Cash Receipts are determined issued AIMCO non-convertible accordance with their respective
by the general partner in its sole preferred stock which ranks on a interests in the AIMCO Operating
discretion after the end of each of parity with its Class H Cumu- Partnership on such record date.
your partnership's fiscal years. No lative Preferred Stock. Such Holders of any other Preferred OP
limited partner has priority over distributions will be cumulative Units issued in the future may have
any other limited partner as to from the date of original issue. priority over the general partner,
distributions or has the right to Holders of Preferred OP Units will the special limited partner and
demand or receive property other not be entitled to receive any holders of Common OP Units with
than cash as distributions. distributions in excess of respect to distributions of
cumulative distributions on the Available Cash, distributions upon
Preferred OP Units. No interest, or liquidation or other distributions.
sum of money in lieu of interest, See "Per Share and Per Unit Data"
shall be payable in respect of any in the accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may not transfer There is no public market for the There is no public market for the
or assign any or any portion of his Preferred OP Units and the OP Units. The AIMCO Operating Part-
interest in his limited partnership Preferred OP Units are not listed nership Agreement restricts the
interest unless: (1) the transferor on any securities exchange. The transferability of the OP Units.
has designated such intention in a Preferred OP Units are subject to Until the expiration of one year
written instrument delivered to the restrictions on transfer as set from the date on which an OP
general partner, (2) the general forth in the AIMCO Operating Unitholder acquired OP Units,
partner consents in writing, which Partnership Agreement. subject to certain exceptions, such
consent may be withheld at the sole OP Unitholder may not transfer all
discretion of the general partner, Pursuant to the AIMCO Operating or any portion of its OP Units to
(3) the transferee has agreed to be Partnership Agreement, until the any transferee without the consent
bound by the terms of your expiration of one year from the of the general partner, which
partnership's agreement of limited date on which a holder of Preferred consent may be withheld in its sole
partnership and (4) the transferor OP Units acquired Preferred OP and absolute discretion. After the
and transferee have complied with Units, subject to certain expiration of one year, such OP
such other requirements as set exceptions, such holder of Unitholder has the right to
forth in your partnership's Preferred OP Units may not transfer transfer all or any portion of its
agreement of limited partnership. all or any portion of its Pre- OP Units to any person, subject to
No assignment or transfers will be ferred OP Units to any transferee the satisfaction of certain
permitted if such assignment or without the consent of the general conditions specified in the AIMCO
transfer, when added to the total partner, which consent may be Operating Partnership Agreement,
of all units transferred within the withheld in its sole and absolute including the general partner's
period of twelve consecutive months discretion. After the expiration of right of first refusal. See
prior thereto would result in the one year, such holders of Preferred "Description of OP Units --
termination of your partnership for OP Units has the right to transfer Transfers and Withdrawals" in the
tax purposes or such transfer would all or any portion of its Preferred accompanying Prospectus.
violate Federal or state securities OP Units to any person, subject to
law or the rules or regulations of the satisfaction of certain After the first anniversary of
any governmental agency or conditions specified in the AIMCO becoming a holder of Common OP
authority with jurisdiction over Operating Partnership Agreement, Units, an OP Unitholder has the
your partnership's property. including the general partner's right, subject to the terms and
right of first refusal. conditions of the AIMCO Operating
There are no redemption rights Partnership Agreement, to require
associated with your units. After a one-year holding period, a the AIMCO Operating Partnership to
holder may redeem Preferred OP redeem all or a portion of the
Units and receive in exchange Common OP Units held by such party
therefor, at the AIMCO Operating in exchange for a cash amount based
Partnership's option, (i) subject on the value of shares of Class A
to the terms of any Senior Units, Common Stock. See "Description of
cash in an amount equal to the OP Units -- Redemption Rights" in
Liquidation Preference of the the accompanying Prospectus. Upon
Preferred OP Units tendered for receipt of a notice of redemption,
redemption, (ii) a number of shares the general partner may, in its
of Class I Cumulative Preferred sole and absolute discretion but
Stock of AIMCO that pay an subject to the restrictions on the
aggregate amount of dividends yield ownership of Class A Common Stock
equivalent to the distributions on imposed under the AIMCO's charter
the Preferred OP Units tendered for and the transfer restrictions and
redemption and are part of a class other limitations thereof, elect to
or series of preferred stock that cause AIMCO to acquire some or all
is then listed on the New York of the tendered Common OP Units in
Stock Exchange or another national exchange for Class A Common Stock,
securities exchange, or (iii) a based on an exchange ratio of one
number of shares of Class A Common share of Class A Common Stock for
Stock of AIMCO that is equal in each Common OP Unit, subject to
Value to the Liquidation Preference adjustment as provided in the AIMCO
of the Preferred OP Units tendered Operating Partnership Agreement.
for redemption. The Preferred OP
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-70
<PAGE> 453
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives such
compensation as is set forth in your partnership's agreement of limited
partnership or in other agreements executed between the general partner and your
partnership that are permitted by your partnership's agreement of limited
partnership from your partnership and may receive reimbursement for expenses
generated in that capacity. The property manager which received management fees
of $ in 1996, $ in 1997 and 46,023 for the first six months of 1998. The
AIMCO Operating Partnership has no current intention of changing the fee
structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-71
<PAGE> 454
YOUR PARTNERSHIP
GENERAL
Brampton Associates Partnership is a Connecticut limited partnership which
raised proceeds in 1985 through a private offering. Insignia acquired your
partnership in December 1996. AIMCO acquired Insignia in October, 1998. There
are currently a total of 53.875 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the single apartment property
described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on December 31, 1985 for the purpose of owning
and operating a single apartment property located in Cary, North Carolina, known
as "Brampton Moors Apartments." Your partnership's property consists of 224
apartment units. There are 112 one-bedroom apartments and 112 two-bedroom
apartments. The total rentable square footage of your partnership's property is
187,600 square feet. Your partnership's property had an average occupancy rate
of approximately 89.29% in 1996 and 89.29% in 1997. The average annual rent per
apartment unit is approximately $7,878.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1996, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $81,698, $92,384 and $46,023, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2040
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement
S-72
<PAGE> 455
of various building systems and other replacements and renovations in the
ordinary course of business. All capital improvement and renovation costs are
expected to be paid from operating cash flows, cash reserves, or from short-term
or long-term borrowings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $7,438,225, payable to First Union and Lehman, which bears
interest at a rate of 8.47%. The mortgage debt is due in June 2004. Your
partnership's agreement of limited partnership also allows the general partner
of your partnership to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of your partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-73
<PAGE> 456
Below is selected financial information for Brampton Associates Partnership
taken from the financial statements described above. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
BRAMPTON ASSOCIATES PARTNERSHIP
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
BALANCE SHEET DATA 1998 1997 1997 1996 1995 1994 1993
------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents.... $ 373,656 $ 984,043 $ 445,004 $ 571,442 $ 591,693 $ $
Land & Building.............. 10,310,940 10,221,325 10,262,811 10,184,071 10,084,696
Accumulated Depreciation..... (6,226,254) (5,836,868) (6,031,561) (5,642,175) (5,253,498)
Other Assets................. 958,398 959,199 970,233 726,405 700,259 0 0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 5,416,740 $ 6,327,699 $ 5,646,487 $ 5,839,743 $ 6,123,150 $ $
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest................... 7,473,467 7,530,090 7,472,082 7,020,157 7,071,360
Other Liabilities............ 117,744 77,571 165,460 133,444 82,679
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... $ 7,591,211 $ 7,607,661 $ 7,637,542 $ 7,153,601 $ 7,154,039 $ 0 $ 0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $(2,174,471) $(1,279,962) $(1,991,055) $(1,313,858) $(1,030,889) $ $
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BRAMPTON ASSOCIATES PARTNERSHIP
------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------------------------------
STATEMENT OF OPERATIONS 1998 1997 1997 1996 1995 1994 1993
----------------------- ----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue..................... $ 843,524 $ 848,042 $1,740,292 $1,676,674 $1,664,647 $ $
Other Income....................... 43,752 41,895 99,318 92,018 116,054
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue............. $ 887,276 $ 889,937 $1,839,610 $1,768,692 $1,780,701 $ 0 $ 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses................. 361,343 338,932 795,880 798,209 724,121
General & Administrative........... 0 0
Depreciation....................... 194,693 194,693 389,386 388,677 380,692
Interest Expense................... 315,727 294,482 587,953 767,081 744,746
Property Taxes..................... 48,928 32,672 93,588 97,695 92,651
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses............ $ 920,691 $ 860,779 $1,866,807 $2,051,662 $1,942,210 $ 0 $ 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ (33,415) $ 29,158 $ (27,197) $ (282,970) $ (161,509) $ 0 $ 0
========== ========== ========== ========== ========== ========== ==========
</TABLE>
S-74
<PAGE> 457
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized a net loss of $33,415 for the six months ended
June 30, 1998, compared to net income of $29,158 for the six months ended June
30, 1997. The decrease in net income of $62,573, or 214.60% was primarily the
result of an increase in interest expense as well as increase in operating
expenses. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$887,276 for the six months ended June 30, 1998, compared to $889,937 for the
six months ended June 30, 1997, a decrease of $2,661, or 0.30%.
Expenses
Operating expenses consisting of utilities (net of reimbursements received
from tenants), contract services, turnover costs, repairs and maintenance,
advertising and marketing, and insurance, totaled $361,343 for the six months
ended June 30, 1998, compared to $338,932 for the six months ended June 30,
1997. The increase of $22,411 or 6.61% is primarily due to higher maintenance
expenses and rental concessions during the six months ended June 1997.
Management expenses totaled $46,023 for the six months ended June 30, 1998,
compared to $45,144 for the six months ended June 30, 1997, an increase of $879,
or 1.95%.
General and Administrative Expenses
Not Applicable.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $315,727 for the six months ended June 30, 1998, compared to
$294,482 for the six months ended June 30, 1997, an increase of $21,245, or
7.21%. The increase resulted from the refinancing of the loan in May 1997.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized a net loss of $27,197 for the year ended
December 31, 1997, compared to a net loss of $282,970 for the year ended
December 31, 1996. The increase in net income of $255,773, or 90.39% was
primarily the result of lower interest expense and increased revenues. These
factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,839,610 for the year ended December 31, 1997, compared to $1,768,692 for the
year ended December 31, 1996, an increase of $70,918, or 4.01%.
S-75
<PAGE> 458
Expenses
Operating expenses consisting of utilities (net of reimbursements received
from tenants), contract services, turnover costs, repairs and maintenance,
advertising and marketing, and insurance, totaled $795,880 for the year ended
December 31, 1997, compared to $798,209 for the year ended December 31, 1996, a
decrease of $2,329 or 0.29%. Management expenses totaled $92,384 for the year
ended December 31, 1997, compared to $89,291 for the year ended December 31,
1996, an increase of $3,093, or 3.46%.
General and Administrative Expenses
Not Applicable.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $587,953 for the year ended December 31, 1997, compared to
$767,081 for the year ended December 31, 1996, a decrease of $179,128, or
23.35%. The decrease resulted from refinancing the mortgage at a lower interest
rate in May 1997.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $282,970 for the year ended
December 31, 1996, compared to a net loss of $161,509 for the year ended
December 31, 1995. The decrease in net income of $121,461, or 75.20% was
primarily the result of decreased revenues coupled with increased operating and
interest expenses. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,768,692 for the year ended December 31, 1996, compared to $1,780,701 for the
year ended December 31, 1995, a decrease of $12,009, or 0.67%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $798,209 for the
year ended December 31, 1996, compared to $724,121 for the year ended December
31, 1995, an increase of $74,088 or 10.23%. The increase is primarily due to
increased advertising and maintenance expenses. Management expenses totaled
$89,291 for the year ended December 31, 1996, compared to $89,077 for the year
ended December 31, 1995, an increase of $214, or 0.24%.
General and Administrative Expenses
Not Applicable.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $767,081 for the year ended December 31, 1996, compared to
$744,746 for the year ended December 31, 1995, an increase of $22,335, or 3.00%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $373,656 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on
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<PAGE> 459
outstanding debt, capital improvements, and distributions paid to limited
partners. Your partnership has adequate sources of cash to finance its
operations, both on a short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner has no liability to your
partnership or to any partner for any loss suffered by your partnership or any
partner which arises out of any action or inaction of the general partner if the
general partner determines, in good faith, such course of conduct was in the
best interests of your partnership and such course of conduct did not constitute
negligence or misconduct of the general partner. As a result, unitholders might
have a more limited right of action in certain circumstances than they would
have in the absence of such a provision in your partnership's agreement of
limited partnership. The general partner of your partnership is owned by AIMCO.
See "Conflicts of Interest."
Your partnership will indemnify the general partner and its affiliates
against any losses, judgments, liabilities, expenses and amounts paid in
settlement, sustained by it in connection with your partnership, provided that
the general partner determines that such course of conduct was in the best
interests of your partnership and that such course of conduct did not constitute
negligence or misconduct on the part of the general partner or its affiliates.
Notwithstanding the foregoing, the general partner and its affiliates, acting as
broker-dealers will not be indemnified for any losses, liabilities or expenses
arising under the Federal or states securities laws unless: (1) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations, (2) such claims have been dismissed with prejudice on the merits
by a court of jurisdiction or (3) a court of competent jurisdiction approves a
settlement of claims. In such claim for indemnification for Federal or state
securities law violation, the party seeking indemnification must place before
the court the position of the SEC and any other applicable regulatory agency
with respect of the issue of indemnification for securities law violations. The
general partner or its affiliates will have advanced to them by your
partnership, at their request, funds for payment of all expenses and costs
reasonably incurred in connection with the defense of any action, suit or
proceeding only if (1) the legal action related to the performance of duties or
services by the general partner or its affiliates on behalf of your partnership,
(2) the legal action is initiated by a third party who is not a limited partner
of your partnership and (3) the general partner or its affiliates undertake to
repay the advanced funds to your partnership, without interest, if it is
determined that a general partner or its affiliates are not entitled to
indemnification. As part of its assumption of liabilities in the consolidation,
AIMCO will indemnify the general partner of your partnership and their
affiliates for periods prior to and following the consolidation to the extent of
the indemnity under the terms of your partnership's agreement of limited
partnership and applicable law.
Your partnership will not incur the cost of that portion of any insurance,
other than public liability insurance, which insures any party against any
liability the indemnification of which is not permitted under your partnership's
agreement of limited partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ Not Available
1995........................................................ Not Available
1996........................................................ Not Available
1997........................................................ $11,851.15
1998 (through June 30)...................................... 2,760.04
</TABLE>
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<PAGE> 460
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner) was as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1994......................... 0 0.00% 0
1995......................... 0 0.00% 0
1996......................... 0 0.00% 0
1997......................... 1 1.86% 2
1998 (through June 30)....... 0 0.00% 0
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ Not Available
1995........................................................ Not Available
1996........................................................ Not Available
1997........................................................ Not Available
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................................ 89,077
1996........................................................ 81,698
1997........................................................ 92,384
1998 (through June 30)...................................... 46,023
</TABLE>
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<PAGE> 461
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation and distributions that would have
been paid to the general partner of your partnership, or the company paid to the
property manager or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
S-79
<PAGE> 462
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet -- Income Tax Basis as of June 30,
1998 (unaudited).......................................... F-2
Condensed Statements of Income & Expenses -- Income Tax
Basis for the six months ended June 30, 1998 and 1997
(unaudited)............................................... F-3
Condensed Statements of Cash Flows -- Income Tax Basis for
the six months ended June 30, 1998 and 1997 (unaudited)... F-4
Notes to Condensed Financial Statements..................... F-5
Independent Accountant's Review Report...................... F-7
Balance Sheet as of December 31, 1997 (unaudited)........... F-8
Statement of Income & Expenses for the year ended December
31, 1997 -- (unaudited)................................... F-9
Statement of Changes in Partners' Capital
(Deficit) -- Income Tax Basis for the year ended December
31, 1997 (unaudited)...................................... F-11
Statement of Cash Flows for the year ended December 31, 1997
(unaudited)............................................... F-12
Notes to Financial Statements............................... F-13
Independent Accountant's Review Report...................... F-18
Balance Sheet as of December 31, 1996 (unaudited)........... F-19
Statement of Income & Expenses for the year ended December
31, 1996 (unaudited)...................................... F-20
Statement of Changes in Partners' Capital (Deficit) --Income
Tax Basis for the year ended December 31, 1996
(unaudited)............................................... F-22
Statement of Cash Flows for the year ended December 31, 1996
(unaudited)............................................... F-23
Notes to Financial Statements............................... F-24
Independent Accountant's Review Report...................... F-29
Balance Sheet as of December 31, 1995 (unaudited)........... F-30
Statement of Revenue and Expenses for the year ended
December 31, 1995 (unaudited)............................. F-31
Statement of Changes in Partners' Capital (Deficit) --Income
Tax Basis for the year ended December 31, 1995
(unaudited)............................................... F-33
Statement of Cash Flows for the year ended December 31, 1995
(unaudited)............................................... F-34
Notes to Financial Statements............................... F-35
</TABLE>
F-1
<PAGE> 463
BRAMPTON ASSOCIATES
CONDENSED BALANCE SHEET
(UNAUDITED)
INCOME TAX BASIS
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 373,656
Receivables and Deposits.................................... 1,053
Restricted Escrows.......................................... 102,194
Syndication Fees............................................ 544,553
Other Assets................................................ 310,598
Investment Property:
Land...................................................... 1,456,918
Building and related personal property.................... 8,854,022
-----------
10,310,940
Less: Accumulated depreciation............................ (6,226,254) 4,084,686
----------- -----------
Total Assets...................................... $ 5,416,740
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ --
Other Accrued Liabilities................................... (117,744)
Property taxes payable...................................... --
Tenant security deposits.................................... --
Notes Payable............................................... (7,473,467)
Partners' Capital........................................... 2,174,471
-----------
Total Liabilities and Partners' Capital........... $(5,416,740)
===========
</TABLE>
F-2
<PAGE> 464
BRAMPTON ASSOCIATES
CONDENSED STATEMENTS OF INCOME & EXPENSES
(UNAUDITED)
INCOME TAX BASIS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Income:
Rental Income............................................. $(843,524) $(848,042)
Other Income.............................................. (43,752) (41,895)
(Gain) Loss on Disposition of Property.................... -- --
Casualty Gain/Loss........................................ -- --
--------- ---------
Total Revenues.................................... (887,276) (889,937)
Expenses:
Operating Expenses........................................ 361,343 338,932
General and Administrative Expenses....................... -- --
Depreciation Expense...................................... 194,693 194,693
Interest Expense.......................................... 315,727 294,482
Property Tax Expense...................................... 48,928 32,672
--------- ---------
Total Expenses.................................... 920,691 860,779
(Income) Loss from Operations............................... 33,415 (29,158)
Extraordinary Gain on Early Extinguishment of Debt.......... -- --
Loss on Sale of Investment Property......................... -- --
Casualty Gain............................................... -- --
--------- ---------
Net (Income) Loss................................. $ 33,415 $ (29,158)
========= =========
</TABLE>
F-3
<PAGE> 465
BRAMPTON ASSOCIATES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCOME TAX BASIS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
--------- -----------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ (33,415) $ 29,158
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 194,693 194,693
Loss on Casualty event................................. -- --
Extraordinary loss on refinancing...................... -- --
Changes in accounts:
Receivables and deposits and other assets............ 78,050 (23,812)
Accounts Payable and accrued expenses................ (47,716) (55,874)
--------- -----------
Net cash provided by (used in) operating
activities...................................... 191,612 144,165
Investing Activities
Property improvements and replacements.................... (48,129) (37,254)
Property improvements -- NON-CASH......................... -- --
Proceeds from sale of investments......................... -- --
Collections on notes receivable........................... -- --
Net (increase)/decrease in restricted escrows..... (35,504) --
Net insurance proceeds received from casualty
events.......................................... -- --
Dividends received........................................ -- --
--------- -----------
Net cash provided by (used in) investing
activities...................................... (83,633) (37,254)
Financing Activities
Payments on mortgage...................................... (29,327) (6,990,067)
Repayment of mortgage..................................... -- --
Prepayment penalties...................................... -- --
Proceeds from refinancing of mortgage..................... -- 7,500,000
Payment of Loan Costs..................................... -- (204,243)
Partners' Distributions................................... (150,000) --
--------- -----------
Net cash provided by (used in) financing
activities...................................... (179,327) 305,690
--------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... (71,348) 412,601
Cash and cash equivalents at beginning of year.............. 445,004 571,442
--------- -----------
Cash and cash equivalents at end of period.................. $ 373,656 $ 984,043
========= ===========
</TABLE>
F-4
<PAGE> 466
BRAMPTON ASSOCIATES, L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Brampton Associates,
L.P. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997
have been prepared in accordance with the accounting basis for federal income
tax reporting. Accordingly, they do not include all the information and
footnotes required by the accounting basis for federal income tax reporting for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997. It should be
understood that the accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
year.
F-5
<PAGE> 467
BRAMPTON ASSOCIATES, L.P.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-6
<PAGE> 468
March 6, 1998
Brampton Associates, L.P.
5665 Northside Drive N.W.
Suite 370
Atlanta, Georgia 30328-5805
We have reviewed the accompanying balance sheets of Brampton Associates,
L.P., income tax basis, as of December 31, 1997, and the related statements of
income and partners' capital (deficit), income tax basis, for the year then
ended, and statement of cash flow, income tax basis, for the year ending
December 31, 1997, in accordance with statements on standards for accounting and
review services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Brampton Associates, L.P.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
As described in Note 2, these financial statements were prepared on the
accounting basis used for income tax purposes and are not intended to be in
conformity with generally accepted accounting principles. As described in Note 6
and 8, we were unable to confirm the accrued interest receivable and the
Gaincred III note balance at December 31, 1997.
Based on our review, we are not aware of any material modification that
should be made to the accompanying financial statements in order for them to be
in conformity with the basis of accounting described in Note 2.
Respectfully submitted,
/s/ PORTOCK, BYE & CO.
Portock, Bye & Co.
Certified Public Accountants
F-7
<PAGE> 469
BRAMPTON ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets
Cash in bank.............................................. $ 445,004.41
Rent receivable........................................... 56.41
Escrow -- R.E. tax........................................ 93,709.39
Escrow -- replace. reserves............................... 66,689.91
Prepaid insurance......................................... 5,460.21
--------------
Total current assets.............................. 610,920.33
Property & equipment (Note 4)
Land...................................................... 1,456,918.00
Land improvements......................................... 58,881.69
Building.................................................. 7,855,226.00
Building improvements..................................... 74,256.10
Equipment................................................. 45,632.13
Furniture & fixtures...................................... 771,896.94
--------------
Total property & equipment................................ 10,262,810.86
Less: accum. depreciation................................. (6,031,561.00)
--------------
Net property & equipment.......................... 4,231,249.86
Other assets
Notes rec. -- Ptrs. (Note 6).............................. 60,062.76
Syndication costs (Note 5)................................ 544,553.00
Financing costs (Note 5).................................. 210,247.53
Legal fees (Note 5)....................................... 10,475.00
--------------
Total other assets........................................ 825,338.29
Less: accum. amortization................................. (21,021.19)
--------------
Total other assets................................ 804,317.10
--------------
Total assets...................................... $ 5,646,487.29
==============
LIABILITIES AND CAPITAL
Current liabilities
Accounts payable -- trade................................. $ 17,194.17
Accrued expense........................................... 92,765.89
Note pay -- GNCRD III (Note 8)............................ 30,712.50
Mortgage payable (Note 7)................................. 59,498.85
Security deposits payable................................. 15,445.00
Prepaid rent.............................................. 9,343.47
--------------
Total current liabilities......................... 224,959.88
Non-current liabilities
Mortgage payable (Note 7)................................. 7,412,582.77
--------------
Total non-current liab. .......................... 7,412,582.77
--------------
Total liabilities................................. 7,637,542.65
Capital
Investment -- partner..................................... (1,963,858.80)
Net loss year to date..................................... (27,196.56)
--------------
Total capital..................................... (1,991,055.36)
--------------
Total liabilities & capital....................... $ 5,646,487.29
==============
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an
integral part of the financial statements.
F-8
<PAGE> 470
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF INCOME & EXPENSES
<TABLE>
<CAPTION>
01/01/97
TO
12/31/97 %
------------- ------
<S> <C> <C>
Income
Rental income............................................. $1,740,292.39 96.08
Misc. income.............................................. 70,956.00 03.92
------------- ------
Total income...................................... 1,811,248.39 100.00
Operating expenses (Sch I).................................. 1,866,806.90 103.07
------------- ------
Net operating loss.......................................... (55,558.51) (03.07)
Other income
Interest earned........................................... 28,361.95 01.57
------------- ------
Net loss.................................................... $ (27,196.56) (01.50)
============= ======
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an integral part of the financial statements.
F-9
<PAGE> 471
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF INCOME & EXPENSES
<TABLE>
<CAPTION>
01/01/97
TO
12/31/97 %
------------- ------
<S> <C> <C>
Operating expenses (Sch I)
Advertising & rental...................................... $ 68,580.81 03.79
Amortization.............................................. 21,279.19 01.17
Credit & collection....................................... 966.13 00.05
Depreciation.............................................. 389,386.00 21.50
Dues & subscription....................................... 18,353.85 01.01
Electric.................................................. 28,811.28 01.59
Equipment rental.......................................... 450.50 00.02
Gas....................................................... 2,760.73 00.15
Insurance................................................. 39,284.25 02.17
Interest -- 1st........................................... 561,767.35 31.02
Interest -- other......................................... 26,186.22 01.45
Legal & professional...................................... 5,207.50 00.29
Licenses.................................................. 680.25 00.04
Maintenance............................................... 296,542.89 16.37
Management fees........................................... 96,368.05 05.32
Office expense............................................ 9,652.67 00.53
Payroll reimbursement..................................... 126,009.01 06.96
Payroll tax reimb. ....................................... 10,394.65 00.57
Property admin. exp. ..................................... 12,466.26 00.69
Taxes -- real estate...................................... 93,587.64 05.17
Telephone................................................. 7,625.31 00.42
Water & sewer............................................. 50,446.36 02.79
------------- ------
Total operating expenses.......................... $1,866,806.90 103.07
============= ======
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an integral part of the financial statements.
F-10
<PAGE> 472
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (INCOME TAX BASIS)
DECEMBER 31, 1997
<TABLE>
<S> <C>
Capital (deficit) -- beginning of year...................... $(1,313,858.41)
Less:
Net (loss)................................................ (27,196.56)
Distributions............................................. (650,000.39)
--------------
Capital (deficit) -- end of year............................ $(1,991,055.36)
==============
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an integral part of the financial statements.
F-11
<PAGE> 473
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C>
Cash flow from operating activities
Net loss.................................................. $ (27,196.56)
Noncash items included in net income
Depreciation........................................... 389,386.00
Amortization........................................... 21,279.19
Changes in:
Rent receivable........................................ 4,234.52
Escrow -- R. E. tax.................................... (11,542.87)
Escrow -- replace. reserves............................ (66,689.91)
Loan receivable........................................ 2,424.00
Prepaid insurance...................................... (5,460.21)
Accounts payable -- trade.............................. (29,340.36)
Accrued expense........................................ 74,561.28
Security deposits payable.............................. (22,145.16)
Prepaid rent........................................... 8,940.93
Notes rec. -- Ptrs. (Note 6)........................... 6,000.00
Financing costs -- net (Note 5)........................ (264,072.26)
Legal fees (note 5).................................... 45,000.00
Reinvestment fees (Note 5)............................. 25,000.00
------------
Total adjustments................................. 177,575.15
------------
Net cash provided by (used by) operating
activities........................................ 150,378.59
Cash flow from investing activities
Land improvements......................................... (11,200.00)
Building improvements..................................... (37,382.75)
Equipment................................................. (13,949.26)
Furniture & fixtures...................................... (16,208.27)
------------
Net cash provided by (used by) investing
activities........................................ (78,740.28)
Cash flow from financing activities
Note pay-RFC (Note 9)..................................... (787,529.00)
Int. pay-RFC (Note 9)..................................... (104,741.36)
Mortgage payable (Note 7)................................. 1,344,194.64
Partners withdraws........................................ (650,000.39)
------------
Net cash provided by (used by) financing
activities........................................ (198,076.11)
------------
Net increase (decrease) in cash................... (126,437.80)
Cash at beginning of year................................... 571,442.21
------------
Cash at end of year......................................... $ 445,004.41
============
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an integral part of the financial statements.
F-12
<PAGE> 474
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 --
A. Organization
Brampton Associates, L.P. (the "Partnership"), a Connecticut Limited
Partnership, was organized on December 17, 1985 to acquire, own, maintain and
operate a 224 unit apartment complex known as Brampton Moors (the "Project")
located in Cary, North Carolina.
B. Purchase by RFC
Pursuant to an acquisition agreement dated October 9, 1985, Resources
Funding Corp. ("RFC"), an affiliate of the former general partner, agreed to
acquire from Westminster Company (the "Seller") the land and the completed
improvements for an aggregate purchase price of $10,000,000 with $1,400,000
allocable to the land and $8,600,000 (which was subsequently reduced by $600,000
to $8,000,000 pursuant to a predetermined pricing formula) allocable to the
improvements. The portion allocable to the improvements is inclusive of interest
at the rate of 16% per annum on certain deferred payments.
On December 31, 1985, the Partnership purchased the land for $1,400,000 and
simultaneously entered into a one year lease agreement with the Seller which
required the Seller to complete the construction of the improvements and to pay
$168,000 per annum in rent to the Partnership. Upon completion of the
improvements in December 1986, RFC paid $7,300,000 (the "Interim Payment") to
the Seller with the balance of $1,300,000 (the "Deferred Payment") payable upon
the occurrence of certain events. $700,000 of the Deferred Payment was paid to
the Seller on the first anniversary of the Interim Payment. The remaining
$600,000 balance of purchase price was not earned by the Seller as the project
did not attain certain predetermined performance levels, thus reducing the
purchase price. The benefit of such reduction in the purchase price was passed
on to the partnership by RFC.
C. Purchase from RFC
Pursuant to the terms of an assignment and assumption agreement dated
December 27, 1985, and a purchase agreement, the Partnership acquired the rights
of RFC under the acquisition agreement. The original purchase price (the
"Purchase Price") payable to RFC by the Partnership for such rights was
$4,080,763, which was reduced to $3,480,763 because of the adjustment to the
Purchase Price paid by RFC to the Seller (see Note 1B).
The Partnership's obligation to pay the Purchase Price is non-recourse to
the general partner and limited partners of the Partnership. A portion of the
Purchase Price was paid with the proceeds of the Partnership borrowing from
Gaincred III Corp. (see Note 8). The limited partners' notes, together with the
collateral securing such notes (including the Project), are pledged to RFC to
secure payment of the Purchase Price or to Gaincred III Corp. to secure payment
of borrowing by the Partnership (see Note 6). On May 7, 1997, the Partnership
refinanced the property (see Note 7) and satisfied the note to RFC.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Partnership are prepared on the accrual
basis of accounting, consistent with reporting for federal income tax purposes,
and include only those assets, liabilities, and results of operations of the
partnership, rather than those of the individual partners.
The building and equipment are stated at cost and are being depreciated
using the accelerated cost recovery system ("ACRS") for assets placed in service
prior to January 1, 1987 and the modified accelerated cost recovery system
("MACRS") for assets placed in service after December 31, 1986.
F-13
<PAGE> 475
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Costs incurred in connection with the sale of the limited partnership units
were capitalized and are not being amortized.
The income or loss of the Partnership is allocated 1% to the general
partner and 99% to the limited partners. There is no provision for income taxes
in the financial statements since the income or loss of the Partnership is
required to be reported by the partners on their respective income tax returns.
NOTE 3 -- CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flow, the Partnership considers all
highly liquid investment instruments with a maturity of three months or less to
be cash equivalents.
NOTE 4 -- PROPERTY, EQUIPMENT AND DEPRECIATION
Depreciation is recorded at rates calculated to amortize the cost of the
assets as follows:
<TABLE>
<S> <C>
Building and equipment...................................... 19 years ACRS
Land improvements........................................... 15 years MACRS
Appliances -- placed in service prior to 1/1/87............. 5 years ACRS
Appliances -- placed in service post 12/31/86............... 7 years 200%
declining
balance
</TABLE>
Land, building, and equipment, with a cost of $10,262,811 are pledged as
collateral for the mortgage note payable.
The costs of maintenance and repairs of the property and equipment are
charged to expense as incurred.
NOTE 5 -- DEFERRED EXPENSES
Deferred expenses and the related amortization are set forth as follows:
<TABLE>
<CAPTION>
AMORT. ACCUM. UNAMORT.
ITEM COST PERIOD AMORT. BALANCE
---- -------- ------- ------- --------
<S> <C> <C> <C> <C>
Syndication costs............................ $544,553 N/A N/A $544,553
Financing costs.............................. $210,248 84 mos. $20,024 $190,224
Legal fees................................... $ 10,475 84 mos. $ 997 $ 9,478
-------- ------- --------
$765,276 $21,021 $744,255
======== ======= ========
</TABLE>
The Partnership refinanced the mortgage on May 7, 1997, consequently, the
unamortized cost of acquiring the previous mortgage has been fully amortized in
1997. Syndication costs are a nondeductible expense and therefore are not being
amortized.
NOTE 6 -- NOTES RECEIVABLE (PARTNERS' CAPITAL CONTRIBUTIONS)
The notes receivable represent capital contributions from the limited
partners. They are payable in quarterly installments of principal and interest
over either a four year or a seven year payment schedule, as elected by each
partner. The notes are unconditional and negotiable and bear interest at the
rate of 11.5% per annum. Interest has not been accrued on these notes for the
current year due to the transition of the general partners and the lack of
sufficient data available from the former general partner. Integrated Resources,
Inc. experienced serious financial difficulties and on February 13, 1990 filed a
voluntary petition for reorganization pursuant to the provisions of Chapter 11.
Notes receivable have been pledged as collateral to secure the Partnership
obligation of the Purchase Price payable to RFC and the note payable to Gaincred
III Corp. (See Notes 1C, 8, 9, and 10).
F-14
<PAGE> 476
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- MORTGAGE NOTES PAYABLE
The Project was subject to a mortgage held by Legg Mason Real Estate
Service Inc. ("Mortgagee") in the original principal amount of $6,400,000. The
mortgage required monthly installments of $62,507 (based on a 35 year
amortization schedule), including interest at the rate of 11.5% per annum. The
mortgage matured on December 1, 1996.
On May 7, 1997, the Partnership refinanced the property with Lehman
Brothers Holdings Inc., which subsequently sold the mortgage to First Union
National Bank of North Carolina. The proceeds of the mortgage were used to
satisfy the first and second mortgage as well as the note with Resources Funding
Corp ("RFC"). The Partnership borrowed $7,500,000.00 at 8.47% per annum. On June
1, 1997 the Partnership was required to pay a payment of interest only with a
constant payment of $57,509.13 commencing on July 1, 1997 and on the first day
of each calendar month thereafter to and including the first day of May, 2004.
The balance of the principal sum then outstanding and all the interest thereon
shall be due and payable on the first day of June, 2004. The Partnership shall
not have the privilege or right to prepay all or any portion of the unpaid
principal balance of the note until May 31, 2001.
Land, building and equipment are pledged as collateral for the above
mortgage.
NOTE 8 -- NOTE PAYABLE -- GAINCRED III CORP.
On December 22, 1988, the Partnership borrowed $1,069,925 from Gaincred III
Corp. evidenced by a single limited recourse promissory note. The note bears
interest at 12% per annum and is payable from the collections of certain limited
partners' notes as specified in the agreement. The proceeds of the borrowing
were used to paydown the Purchase Price (see note 1C). The sole security for
this obligation is certain limited partners notes and their limited partnership
interests. The balance of the note as of December 31, 1997 was unable to be
confirmed. However, since the partners notes are the only security for this
note, it has an immaterial effect on the financial statements taken as a whole.
NOTE 9 -- PURCHASE PRICE AND INTEREST ON PURCHASE PRICE PAYABLE
This amount represented the unpaid balance of the purchase price payable to
RFC. On May 7, 1997 the balance of the note, along with the accrued interest was
satisfied with the proceeds of the refinancing with Lehman Brothers Holdings,
Inc. The obligation carried interest from December 31, 1985 at the rate of 14%
per annum prior to the Reorganization Plan and 9.5% per annum pursuant to the
Reorganization Plan, compounded quarterly (see note 1C).
NOTE 10 -- MANAGEMENT FEE
The Partnership entered into a management contract with Resources Property
Management Corp. ("RPMC"), an affiliate of the general partner. The contract
called for a fee of 4% of the gross receipts, as defined in the contract. The
management contract with RPMC was terminated effective June 1, 1991. A new
management contract was entered into by the Partnership with Drucker & Falk
effective June 1, 1991 on similar terms as with RPMC. This contract was
terminated effective November 1, 1993. Upon termination of their contract the
Partnership owed RPMC $45,169 for their services. However, pursuant to the
Reorganization Plan, the amount due to RPMC was reduced to $10,000 which was
paid in 1993. On November 1, 1993, a management contract was entered into with
NPI Property Management Corp. and in February 1996, Insignia Financial became
the new management company. Management fees paid to Insignia Financial for 1997
were $92,384.
F-15
<PAGE> 477
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- PETITION FOR RELIEF UNDER CHAPTER 11
On December 18, 1991, the Partnership filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the Federal Bankruptcy Court
for the Southern District of New York. The Reorganization Plan developed by the
Partnership was confirmed by the Federal Bankruptcy Court for the Southern
District of New York on September 15, 1992, effective September 30, 1992. Under
the Reorganization Plan, certain debts of the Partnership were reduced and the
terms of repayment modified as described in Notes 9, 10, and 11. In accordance
with the Internal Revenue Code, the reduction of the Purchase Price payable, as
described in Note 9 was applied to reduce the basis of the fixed assets, and the
reduction of the amounts due to Integrated and its affiliates (Note 11) and RPMC
(Note 10) which was recorded as cancellation of debt income in the 1992
financial statements.
F-16
<PAGE> 478
BRAMPTON ASSOCIATES, L.P.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
F-17
<PAGE> 479
March 19, 1997
Brampton Associates, L.P.
5665 Northside Drive N.W.
Suite 370
Atlanta, Georgia 30328-5805
We have reviewed the accompanying balance sheets of Brampton Associates,
L.P., income tax basis, as of December 31, 1996, and the related statements of
income and partners' capital (deficit), income tax basis, for the year then
ended, and statement of cash flow, income tax basis, for the year ending
December 31, 1996, in accordance with statements on standards for accounting and
review services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Brampton Associates, L.P.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
As described in Note 2, these financial statements were prepared on the
accounting basis used for income tax purposes and are not intended to be in
conformity with generally accepted accounting principles. As described in Note 6
and 8, we were unable to confirm the accrued interest receivable and the
Gaincred III Note Balance at December 31, 1996.
Based on our review, we are not aware of any material modification that
should be made to the accompanying financial statements in order for them to be
in conformity with the basis of accounting described in Note 2.
Respectfully submitted,
/s/ PORTOCK, BYE & CO.
Portock, Bye & Co.
Certified Public Accountants
F-18
<PAGE> 480
BRAMPTON ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets
Cash in bank.............................................. $ 571,442.21
Rent receivable........................................... 4,290.93
Escrow -- R.E. tax........................................ 82,166.52
Loan receivable........................................... 2,424.00
--------------
Total current assets.............................. 660,323.66
Property & equipment (Note 4)
Land...................................................... 1,456,918.00
Land improvements......................................... 47,681.69
Building.................................................. 7,855,226.00
Building improvements..................................... 36,873.35
Equipment................................................. 31,682.87
Furniture & fixtures...................................... 755,688.67
--------------
Total property & equipment................................ 10,184,070.58
Less: accum. depreciation................................. (5,642,175.00)
--------------
Net property & equipment.......................... 4,541,895.58
Other assets
Notes rec. -- ptrs. (Note 6).............................. 66,062.76
Syndication costs (Note 5)................................ 544,553.00
Financing costs (Note 5).................................. 226,060.27
Legal fees (Note 5)....................................... 55,475.00
Reinvestment fees (Note 5)................................ 25,000.00
--------------
Total other assets........................................ 917,151.03
Less: accum. amortization................................. (279,627.00)
--------------
Total other assets................................ 637,524.03
--------------
Total assets...................................... $ 5,839,743.27
==============
LIABILITIES AND CAPITAL
Current liabilities
Accounts payable -- trade................................. $ 46,534.53
Accrued expense........................................... 18,204.61
Note pay-GNCRD III (Note 8)............................... 30,712.50
Mortgage payable.......................................... 6,127,886.98
Security deposits payable................................. 37,590.16
Prepaid rent.............................................. 402.54
Int. pay-RFC (Note 9)..................................... 104,741.36
--------------
Total current liabilities......................... 6,366,072.68
Non-current liabilities
Note pay-RFC (Note 9)..................................... 787,529.00
--------------
Total non-current liab. .......................... 787,529.00
--------------
Total liabilities................................. 7,153,601.68
Capital
Investment -- partner..................................... (1,030,888.59)
Net loss year to date..................................... (282,969.82)
--------------
Total capital..................................... (1,313,858.41)
--------------
Total liabilities & capital....................... $ 5,839,743.27
==============
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an integral part of the financial statements.
F-19
<PAGE> 481
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF INCOME & EXPENSES
<TABLE>
<CAPTION>
01/01/96
TO
12/31/96 %
------------- ------
<S> <C> <C>
Income
Rental income............................................. $1,676,674.28 96.24
Misc. income.............................................. (92,017.88) 3.76
------------- ------
Total income...................................... 1,742,163.35 100.00
Operating expenses (Sch I).................................. 2,051,661.98 117.77
------------- ------
Net operating loss.......................................... (309,498.63) (17.77)
Other income
Interest earned........................................... (92,017.88) 1.52
------------- ------
Net loss.......................................... $ (282,969.82) (16.24)
============= ======
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an integral part of the financial statements.
F-20
<PAGE> 482
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF INCOME & EXPENSES
<TABLE>
<CAPTION>
01/01/96
TO
12/31/96 %
------------- ------
<S> <C> <C>
Operating expenses (Sch I)
Advertising & rental...................................... $ 61,186.53 3.51
Amortization.............................................. 22,821.00 1.31
Credit & collection....................................... 813.45 0.05
Depreciation.............................................. 388,677.00 22.31
Dues & subscription....................................... 22,153.79 1.27
Electric.................................................. 11,563.22 0.66
Equipment rental.......................................... 1,988.64 0.11
Gas....................................................... 1,624.56 0.09
Insurance................................................. 41,056.03 2.36
Interest -- 1st........................................... 718,487.44 41.24
Interest -- 2nd........................................... 48,593.65 2.79
Interest -- other......................................... 75,609.32 4.34
Legal & professional...................................... 17,830.00 1.02
Licenses.................................................. 323.75 0.02
Maintenance............................................... 228,614.65 13.12
Management fees........................................... 92,601.90 5.32
Office expense............................................ 15,716.39 0.90
Payroll reimbursement..................................... 125,444.84 7.20
Payroll tax reimb. ....................................... 10,870.25 0.62
Property admin. exp. ..................................... 5,046.25 0.29
Promotion................................................. 1,019.09 0.06
Taxes -- real estate...................................... 97,694.91 5.61
Taxes -- other............................................ 500.00 0.03
Telephone................................................. 6,054.08 0.35
Water & sewer............................................. 55,371.24 3.18
------------- ------
Total operating expenses.......................... $2,051,661.98 117.77
============= ======
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an integral part of the financial statements.
F-21
<PAGE> 483
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (INCOME TAX BASIS)
DECEMBER 31, 1996
<TABLE>
<S> <C>
Capital (deficit) -- beginning of year...................... $(1,030,888.59)
Net (loss).................................................. $ (282,969.82)
--------------
Capital (deficit) -- end of year............................ $(1,313,858.41)
==============
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an
integral part of the financial statements.
F-22
<PAGE> 484
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C>
Cash flow from operating activities
Net loss.................................................. $ (282,969.82)
Noncash items included in net income
Depreciation........................................... 388,677.00
Amortization........................................... 22,821.00
Changes in:
Rent receivable........................................ (3,285.18)
Escrow -- R.E. tax..................................... (67,784.39)
Loan receivable........................................ 280.15
Accounts payable -- trade.............................. 20,404.83
Accrued expense........................................ 18,204.61
Security deposits payable.............................. (1,037.50)
Accrued interest pay. ................................. (55,077.71)
Prepaid rent........................................... (17,519.51)
Notes rec. -- ptrs. (note 6)........................... 5,000.00
Financing costs (note 5)............................... 16,175.27
Legal fees (note 5).................................... 10,475.00
Int. pay-rfc (note 9).................................. 74,815.26
--------------
Total adjustments................................. 358,848.29
--------------
Net cash provided by (used by) operating
activities....................................... 75,878.47
Cash flow from investing activities
Building improvements..................................... (20,847.65)
Equipment................................................. (2,279.00)
Furniture & fixtures...................................... (76,247.53)
--------------
Net cash provided by (used by) investing
activities....................................... (99,374.18)
Cash flow from financing activities
Mtg. pay-L.M. (note 7).................................... (5,747,239.53)
Mtg. pay-society (note 7)................................. (420,874.60)
Mortgage payable.......................................... 6,127,886.98
--------------
Net cash provided by (used by) financing
activities....................................... (40,227.15)
--------------
Net increase (decrease) in cash............................. (63,722.86)
Cash at beginning of year................................... 591,693.08
--------------
Cash at end of year......................................... $ 527,970.22
==============
</TABLE>
See accompanying accountants review letter and accompanying notes to financial
statements which are an
integral part of the financial statements.
F-23
<PAGE> 485
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 --
A. Organization
Brampton Associates, L.P. (the "Partnership"), a Connecticut limited
partnership, was organized on December 17, 1985 to acquire, own, maintain and
operate a 224 unit apartment complex known as Brampton Moors (the "Project")
located in Cary, North Carolina.
B. Purchase by RFC
Pursuant to an acquisition agreement dated October 9, 1985, Resources
Funding Corp. ("RFC"), an affiliate of the former general partner, agreed to
acquire from Westminster Company (the "Seller") the land and the completed
improvements for an aggregate purchase price of $10,000,000 with $1,400,000
allocable to the land and $8,600,000 (which was subsequently reduced by $600,000
to $8,000,000 pursuant to a predetermined pricing formula) allocable to the
improvements. The portion allocable to the improvements is inclusive of interest
at the rate of 16% per annum on certain deferred payments.
On December 31, 1985, the partnership purchased the land for $1,400,000 and
simultaneously entered into a one year lease agreement with the seller which
required the seller to complete the construction of the improvements and to pay
$168,000 per annum in rent to the partnership. Upon completion of the
improvements in December 1986, RFC paid $7,300,000 (the "Interim Payment") to
the seller with the balance of $1,300,000 (the "Deferred Payment") payable upon
the occurrence of certain events. $700,000 of the deferred payment was paid to
the seller on the first anniversary of the interim payment. The remaining
$600,000 balance of purchase price was not earned by the seller as the project
did not attain certain predetermined performance levels, thus reducing the
purchase price. The benefit of such reduction in the purchase price was passed
on to the partnership by RFC.
C. Purchase from RFC
Pursuant to the terms of an assignment and assumption agreement dated
December 27, 1985, and a purchase agreement, the partnership acquired the rights
of RFC under the acquisition agreement. The original purchase price (the
"Purchase Price") payable to RFC by the partnership for such rights was
$4,080,763, which was reduced to $3,480,763 because of the adjustment to the
purchase price paid by RFC to the seller (see Note 1B).
The partnership's obligation to pay the purchase price is non-recourse to
the general partner and limited partners of the partnership. A portion of the
purchase price was paid with the proceeds of the partnership borrowing from
Gaincred III Corp (see Note 8). The limited partners' notes, together with the
collateral securing such notes (including the project), are pledged to RFC to
secure payment of the purchase price or to Gaincred III Corp to secure payment
of borrowing by the partnership (see Note 6).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the partnership are prepared on the accrual
basis of accounting, consistent with reporting for federal income tax purposes,
and include only those assets, liabilities, and results of operations of the
partnership, rather than those of the individual partners.
The building and equipment are stated at cost and are being depreciated
using the Accelerated Cost Recovery System ("ACRS") for assets placed in service
prior to January 1, 1987 and the modified Accelerated Cost Recovery System
("MACRS") for assets placed in service after December 31, 1986.
Costs incurred in connection with the sale of the limited partnership units
were capitalized and are not being amortized.
F-24
<PAGE> 486
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The income or loss of the partnership is allocated 1% to the general
partner and 99% to the limited partners. There is no provision for income taxes
in the financial statements since the income or loss of the partnership is
required to be reported by the partners on their respective income tax returns.
NOTE 3 -- CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flow, the partnership considers all
highly liquid investment instruments with a maturity of three months or less to
be cash equivalents.
NOTE 4 -- PROPERTY, EQUIPMENT AND DEPRECIATION
Depreciation is recorded at rates calculated to amortize the cost of the
assets as follows:
<TABLE>
<S> <C>
Building and equipment.................................... 19 years ACRS
Land improvements......................................... 15 years MACRS
Appliances -- placed in service prior to 1/1/87........... 5 years ACRS
Appliances -- placed in service post 12/31/86............. 7 years 200%
declining
balance
</TABLE>
Land, building, and equipment, with a cost of $10,184,071. are pledged as
collateral for the mortgage note payable.
The costs of maintenance and repairs of the property and equipment are
charged to expense as incurred.
NOTE 5 -- DEFERRED EXPENSES
Deferred expenses and the related amortization are set forth as follows:
<TABLE>
<CAPTION>
AMORT. ACCUM. UNAMORT.
ITEM COST PERIOD AMORT. BALANCE
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Syndication costs................................. $544,553 N/A N/A $544,553
Financing costs................................... $209,885 120 Mos. $209,885 $ 0
Legal fees........................................ $ 45,000 60 Mos. $ 45,000 $ 0
Reinvest. fees.................................... $ 25,000 82 Mos. $ 24,742 $ 258
-------- -------- --------
$824,438 $279,627 $544,811
======== ======== ========
</TABLE>
In addition, during 1996, legal fees of $10,475 and financing fees of
$16,175 were paid as part of the refinancing as discussed in Note 7. These fees
have not been subject to amortization until the refinancing is finalized.
Syndication costs are a nondeductable expense and therefore are not being
amortized.
NOTE 6 -- NOTES RECEIVABLE (PARTNERS' CAPITAL CONTRIBUTIONS)
The notes receivable represent capital contributions from the limited
partners. They are payable in quarterly installments of principal and interest
over either a four year or a seven year payment schedule, as elected by each
partner. The notes are unconditional and negotiable and bear interest at the
rate of 11.5% per annum. Interest has not been accrued on these notes for the
current year due to the transition of the general partners and the lack of
sufficient data available from the former general partner. Integrated Resources,
Inc. experienced serious financial difficulties and on February 13, 1990 filed a
voluntary petition for reorganization pursuant to the provisions of Chapter 11.
Notes receivable have been pledged as collateral to secure the partnership
obligation of the purchase price payable to RFC and the note payable to Gaincred
III Corp. (See Notes 1C, 8, 9, and 10).
F-25
<PAGE> 487
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- MORTGAGE NOTES PAYABLE
The project was subject to a mortgage held by Legg Mason Real Estate
Service Inc. ("Mortgagee") in the original principal amount of $6,400,000. The
mortgage required monthly installments of $62,507 (based on a 35 year
amortization schedule), including interest at the rate of 11.5% per annum. The
mortgage matured on December 1, 1996. The partnership is presently negotiating
refinancing with Lehman Brothers. Lehman Brothers is purchasing the mortgage
payable to both Legg Mason and Key Bank Society National Bank.
As a condition to financing, the partnership was required to supply a
letter of credit or to place up to $2 million in escrow, the amount of such
funds to decline based on the amount of the shortfall from predetermined
property performance levels. If two years from the date of disbursement of the
mortgage loan, the project had not yet achieved the predetermined property
performance levels, the mortgage loan would be reduced by 95% of the amount then
held in escrow drawn under the letter of credit (the remaining 5% to be paid to
the lender as a reinvestment fee). RFC had agreed to advance to the partnership
the required letter of credit or escrow amount and in the event of a reduction
in the mortgage loan and payment of a reinvestment fee to the lender, RFC has
agreed to lend the total of such amounts to the partnership on the same
conditions as such amounts would have been due under the mortgage loan. However,
the partnership, and not RFC, posted the letter of credit. The partnership also
posted its demand note as security for nay drawings under the letter of credit
and Integrated Resources, Inc. guaranteed the obligation of the partnership in
connection with the letter of credit. In 1988, as a result of meeting certain
predetermined property performance levels, the amount of the letter of credit
was reduced to $500,000.
As a result of the project not meeting certain predetermined performance
levels, on February 15, 1990, the escrow agent for the holder of the permanent
mortgage drew the entire amount of $500,000. Available under the letter of
credit. 95% of the drawn amount was applied towards the reduction of principal
of the mortgage loan and the remaining 5% of the drawn down amount was paid to
Crown Life Insurance Company, the former mortgagee, as a reinvestment fee. Due
to a reduction of the remaining principal balance, the mortgagee agreed to
reduce the monthly installment payments from $62,507 to $57,835 effective April
1, 1990. The mortgage note can be prepaid in full at a premium as described in
the mortgage note.
As a result of a drawdown under the letter of credit as described above,
the demand note in the amount of $500,000 became payable to Society National
Bank ("Society"), (formerly Ameritrust Company National Associates) on February
15, 1990. Pursuant to a plan of reorganization approved by the bankruptcy court
under Chapter 11 of the United States Bankruptcy Code ("Reorganization Plan"),
the demand note due to Society was converted into a term loan in the amount of
$500,000 (the "Second Mortgage"). The second mortgage required monthly payments
of $4,491 (based on a 35 year amortization schedule), including interest at the
rate of 10.5% per annum and matured on December 1, 1996. The Society Mortgage
was part of the refinancing plan as discussed above.
Land, building and equipment, carried at a net book value of $4,541,896 are
pledged as collateral for the above mortgages as well as the refinancing
mortgage.
NOTE 8 -- NOTE PAYABLE -- GAINCRED III CORP.
On December 22, 1988, the partnership borrowed $1,069,925 form Gaincred III
Corp. evidenced by a single limited recourse promissory note. The note bears
interest at 12% per annum and is payable from the collections of certain limited
partners' notes as specified in the agreement. The proceeds of the borrowing
were used to paydown the purchase price (see Note 1C). The sole security for
this obligation is certain limited partners notes and their limited partnership
interests. The balance of the note as of December 31, 1996 was unable to be
confirmed during this period of transition. However, since the partners notes
are the only security for this note, it has an immaterial effect on the
financial statements taken as a whole.
F-26
<PAGE> 488
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- PURCHASE PRICE AND INTEREST ON PURCHASE PRICE PAYABLE
This amount represents the unpaid balance of the purchase price payable to
RFC. The obligation carried interest from December 31, 1985 at the rate of 14%
per annum, compounded quarterly (see Note 1C). Pursuant to the reorganization
plan, the unpaid balance of the purchase price was reduced by $194,000. The new
RFC note with a current principal amount of $787,529 bears interest at 9.5% per
annum and is secured by certain notes from limited partners (see Note 1C).
Subject to certain restrictions, the new RFC note is to be paid from the
proceeds of collection of the notes receivable from limited partners, cash flows
from operations of the project and from sales proceeds of the project. The
partnership has incurred default interest in the amount of $30,500 which shall
bear interest at the rate of 9.5% per annum and shall be payable on December 1,
1997. This default amount will be waived if no future events of default occur.
This interest is not included in the financial statements due to its contingency
on future events.
NOTE 10 -- MANAGEMENT FEE
The partnership entered into a management contract with Resources Property
Management Corp. ("RPMC"), an affiliate of the general partner. The contract
called for a fee of 4% of the gross receipts, as defined in the contract. The
management contract with RPMC was terminated effective June 1, 1991. A new
management contract was entered into by the partnership with Drucker & Falk
effective June 1, 1991 on similar terms as with RPMC. This contract was
terminated effective November 1, 1993. Upon termination of their contract the
partnership owed RPMC $45,169 for their services. However, pursuant to the
reorganization plan, the amount due to RPMC was reduced to $10,000 which was
paid in 1993. On November 1, 1993, a new management contract was entered into
with NPI Property Management Corp. which was an affiliate of the new general
partner. Management fees paid to NPI Property Management Corp. for the year
ended December 31, 1996 are $7,593.00. In February 1996, Insignia Financial
became the new management company. Management fees paid to Insignia Financial
for 1996 were $81,698.00.
NOTE 11 -- PETITION FOR RELIEF UNDER CHAPTER 11
On December 18, 1991, the partnership filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the Federal Bankruptcy Court
for the Southern District of New York. The Reorganization Plan developed by the
partnership was confirmed by the Federal Bankruptcy Court for the Southern
District of New York on September 15, 1992, effective September 30, 1992. Under
the Reorganization Plan, certain debts of the partnership were reduced and the
terms of repayment modified as described in Notes 9, 10, and 11. In accordance
with the Internal Revenue Code, the reduction of the purchase price payable, as
described in Note 9 was applied to reduce the basis of the fixed assets, and the
reduction of the amounts due to Integrated and its affiliates (Note 11) and RPMC
(Note 10) which was recorded as cancellation of debt income in the 1992
financial statements.
F-27
<PAGE> 489
BRAMPTON ASSOCIATES, L.P.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
F-28
<PAGE> 490
February 17, 1996
Brampton Associates, L.P.
5665 Northside Drive N.W.
Suite 370
Atlanta, Georgia 30328-5805
We have reviewed the accompanying balance sheets of Brampton Associates,
L.P., income tax basis, as of December 31, 1995, and the related statements of
income and partners' capital (deficit), income tax basis, for the year then
ended, and statement of cash flow, income tax basis, for the year ending
December 31, 1995, in accordance with statements on standards for accounting and
review services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Brampton Associates, L.P.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
As described in Note 2, these financial statements were prepared on the
accounting basis used for income tax purposes and are not intended to be in
conformity with generally accepted accounting principles. As described in Note 6
and 8, we were unable to confirm the accrued interest receivable and the
Gaincred III note balance at December 31, 1995.
Based on our review, we are not aware of any material modification that
should be made to the accompanying financial statements in order for them to be
in conformity with the basis of accounting described in Note 2.
Respectfully Submitted,
/s/ PORTOCK, BYE & CO.
Portock, Bye & Co.
Certified Public Accountants
F-29
<PAGE> 491
BRAMPTON ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
Current assets
Cash in bank.............................................. $ 591,693.08
Cash in bank -- restricted................................ 43,471.99
Rent receivable........................................... 1,005.75
Escrow -- R.E. tax........................................ 14,382.13
Loan receivable........................................... 2,704.15
--------------
Total current assets............................... 653,257.10
Property & equipment (Note 4)
Land...................................................... 1,456,918.00
Land improvements......................................... 47,681.69
Building.................................................. 7,855,226.00
Building improvements..................................... 16,025.70
Equipment................................................. 29,403.87
Furniture & fixtures...................................... 679,441.14
--------------
Total property & equipment................................ 10,084,696.40
Less: accum. depreciation................................. (5,253,498.00)
--------------
Net property & equipment........................... 4,831,198.40
Other assets
Notes rec. -- ptrs. (Note 6).............................. 71,062.76
Syndication costs (Note 5)................................ 544,553.00
Financing costs (Note 5).................................. 209,885.00
Legal fees (Note 5)....................................... 45,000.00
Reinvestment fees (Note 5)................................ 25,000.00
--------------
Total other assets........................................ 895,500.76
Less: accum. amortization................................. (256,806.00)
--------------
Total other assets................................. 638,694.76
--------------
Total assets....................................... $ 6,123,150.26
==============
LIABILITIES AND CAPITAL
Current liabilities
Accounts payable -- trade................................. $ 26,129.70
Mtg. pay -- L.M. (Note 7)................................. 5,747,239.53
Mtg. pay -- society (Note 7).............................. 420,874.60
Note pay -- GNCRD III (Note 8)............................ 30,712.50
Security deposits payable................................. 38,627.66
Accrued interest pay. .................................... 55,077.71
Prepaid rent.............................................. 17,922.05
Int. Pay -- RFC (Note 9).................................. 29,926.10
--------------
Total current liabilities.......................... 6,366,509.85
Non-current liabilities
Note pay -- RFC (Note 9).................................. 787,529.00
--------------
Total non-current liab. ........................... 787,529.00
--------------
Total liabilities.................................. 7,154,038.85
Capital
Investment -- Partner..................................... (845,730.11)
Net loss year to date..................................... (161,508.48)
Withdraws................................................. (23,650.00)
--------------
Total capital...................................... (1,030,888.59)
--------------
Total liabilities & capital........................ $ 6,123,150.26
==============
</TABLE>
See accompanying accountants review letter
which is an integral part of this statement.
F-30
<PAGE> 492
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
01/01/95
TO
12/31/95
-------------
<S> <C>
Income
Rental income............................................. $1,664,647.36
Misc. income.............................................. 60,996.70
Late charges.............................................. 2,206.63
Laundry income............................................ 13,982.68
-------------
Total income...................................... 1,741,833.37
Operating expenses (Sch. I)................................. 1,942,209.73
-------------
Net operating loss.......................................... (200,376.36)
Other income
Interest earned........................................... 38,867.88
-------------
Total other income................................ 38,867.88
-------------
Net loss.......................................... $ (161,508.48)
=============
</TABLE>
See accompanying accountants review letter
which is an integral part of this statement.
F-31
<PAGE> 493
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
01/01/95
TO
12/31/95
------------
<S> <C>
Operating expenses (Sch I)
Advertising............................................... 14,844.37
Amortization.............................................. 24,560.00
Bad debts................................................. 6,917.00
Computer fees............................................. 858.68
Credit & collection....................................... 845.98
Depreciation.............................................. 380,692.00
Dues & subscription....................................... 19,751.59
Electric.................................................. 28,343.54
Exterminator.............................................. 2,514.09
Equipment rental.......................................... 2,259.76
Gas....................................................... 2,448.69
Insurance................................................. 57,985.85
Interest -- 1st........................................... 662,606.46
Interest -- 2nd........................................... 49,275.04
Interest -- other......................................... 32,864.57
Legal & professional...................................... 14,937.50
Licenses.................................................. 623.75
Locator fees.............................................. 5,065.83
Maintenance............................................... 176,929.87
Pool...................................................... 2,096.27
Management fees........................................... 89,077.00
Office expense............................................ 57,519.23
Payroll reimbursement..................................... 112,821.88
Payroll tax reimb. ....................................... 14,317.53
Property admin. exp. ..................................... 4,815.17
Promotion................................................. 7,495.33
Taxes -- real estate...................................... 92,651.02
Telephone................................................. 5,764.24
Travel.................................................... 482.47
Trash..................................................... 10,503.11
Water & sewer............................................. 60,341.04
------------
Total operating expenses.......................... 1,942,209.73
============
</TABLE>
See accompanying accountants review letter
which is an integral part of this statement.
F-32
<PAGE> 494
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (INCOME TAX BASIS)
DECEMBER 31, 1995
<TABLE>
<S> <C>
Capital (deficit) -- beginning of year...................... $ (845,730.11)
Withdraws -- defaulted partners notes....................... $ (23,650.00)
Net (loss).................................................. $ (161,508.48)
--------------
Capital (deficit) -- end of year............................ $(1,030,888.59)
==============
</TABLE>
See accompanying accountants review letter
which is an integral part of this statement.
F-33
<PAGE> 495
BRAMPTON ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
Cash flow from operating activities
Net income................................................ $(161,508.48)
Noncash items included in net income
Depreciation........................................... $ 380,692.00
Amortization........................................... 24,560.00
Changes in:
Cash in bank -- restricted............................. 114,853.06
Rent receivable........................................ 2,340.82
Escrow -- R.E. tax..................................... (5,948.98)
Loan receivable........................................ (2,704.15)
Prepaid insurance...................................... 7,394.59
Accounts payable -- trade.............................. 15,788.06
Security deposits payable.............................. (1,199.93)
Accrued interest pay. ................................. (298.19)
Prepaid rent........................................... (450.06)
Notes rec. -- ptrs. (note 6)........................... 52,709.18
Int. pay -- RFC (note 9)............................... (98,349.01)
--------------
Total adjustments................................. 489,387.39
------------
Net cash provided by (used by) operating
activities...................................... 327,878.91
Cash flow from investing activities
Land improvements......................................... (23,881.69)
Equipment................................................. (6,505.06)
Furniture & fixtures...................................... (60,488.67)
--------------
Net cash provided by (used by) investing
activities...................................... (90,875.42)
Cash flow from financing activities
Mtg. pay -- L.M. (note 7)................................. (5,747,239.53)
Mtg. pay -- society (note 7).............................. (495,007.38)
Note pay -- RFC (note 9).................................. (108,252.69)
Partners withdraws........................................ (23,650.00)
Mtg. pay -- L.M. (note 7)................................. 5,716,124.18
Mtg. pay -- society (note 7).............................. $ 419,078.99
--------------
Net cash provided by (used by) financing
activities...................................... (238,946.43)
------------
Net increase (decrease) in cash................... (1,942.94)
Cash at beginning of year................................... 593,636.02
------------
Cash at end of year......................................... $ 591,693.08
============
</TABLE>
See accompanying accountants review letter
which is an integral part of this statement.
F-34
<PAGE> 496
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 --
A. Organization
Brampton Associates, L.P. (the "Partnership"), a Connecticut Limited
Partnership, was organized on December 17, 1985 to acquire, own, maintain and
operate a 224 unit apartment complex known as Brampton Moors (the "Project")
located in Cary, North Carolina.
B. Purchase by RFC
Pursuant to an acquisition agreement dated October 9, 1985, Resources
Funding Corp. ("RFC"), an affiliate of the former general partner, agreed to
acquire from Westminster Company (the "Seller") the land and the completed
improvements for an aggregate purchase price of $10,000,000 with $1,400,000
allocable to the land and $8,600,000 (which was subsequently reduced by $600,000
to $8,000,000 pursuant to a predetermined pricing formula) allocable to the
improvements. The portion allocable to the improvements is inclusive of interest
at the rate of 16% per annum on certain deferred payments.
On December 31, 1985, the Partnership purchased the land for $1,400,000 and
simultaneously entered into a one year lease agreement with the Seller which
required the Seller to complete the construction of the improvements and to pay
$168,000 per annum in rent to the Partnership. Upon completion of the
improvements in December 1986, RFC paid $7,300,000 (the "Interim Payment") to
the Seller with the balance of $1,300,000 (the "Deferred Payment") payable upon
the occurrence of certain events. $700,000 of the Deferred Payment was paid to
the Seller on the first anniversary of the Interim Payment. The remaining
$600,000 balance of purchase price was not earned by the Seller as the project
did not attain certain predetermined performance levels, thus reducing the
purchase price. The benefit of such reduction in the purchase price was passed
on to the Partnership by RFC.
C. Purchase from RFC
Pursuant to the terms of an assignment and assumption agreement dated
December 27, 1985, and a purchase agreement, the Partnership acquired the rights
of RFC under the acquisition agreement. The original purchase price (the
"Purchase Price") payable to RFC by the Partnership for such rights was
$4,080,763, which was reduced to $3,480,763 because of the adjustment to the
purchase price paid by RFC to the Seller (see Note 1B).
The Partnership's obligation to pay the Purchase Price is non-recourse to
the general partner and limited partners of the Partnership. A portion of the
purchase price was paid with the proceeds of the Partnership borrowing from
Gaincred III Corp (see Note 8). The limited partners' notes, together with the
collateral securing such notes (including the Project), are pledged to RFC to
secure payment of the Purchase Price or to Gaincred III Corp to secure payment
of borrowing by the Partnership (see Note 6).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Partnership are prepared on the accrual
basis of accounting, consistent with reporting for federal income tax purposes,
and include only those assets, liabilities, and results of operations of the
Partnership, rather than those of the individual partners.
The building and equipment are stated at cost and are being depreciated
using the Accelerated Cost Recovery System ("ACRS") for assets placed in service
prior to January 1, 1987 and the Modified Accelerated Cost Recovery System
("MACRS") for assets placed in service after December 31, 1986.
Costs incurred in connection with the sale of the limited partnership units
were capitalized and are not being amortized.
F-35
<PAGE> 497
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The income or loss of the Partnership is allocated 1% to the general
partner and 99% to the limited partners. There is no provision for income taxes
in the financial statements since the income or loss of the Partnership is
required to be reported by the partners on their respective income tax returns.
NOTE 3 -- CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flow, the Partnership considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
NOTE 4 -- PROPERTY, EQUIPMENT AND DEPRECIATION
Depreciation is recorded at rates calculated to amortize the cost of the
assets as follows:
<TABLE>
<S> <C>
Building and Equipment...................................... 19 Years ACRS
Land Improvements........................................... 15 Years MACRS
Appliances -- placed in service prior to 1/1/87............. 5 Years ACRS
Appliances -- placed in service post 12/31/86............... 7 Years 200%
declining
balance
</TABLE>
Land, building, and equipment, with a cost of $10,084,696 are pledged as
collateral for the mortgage note payable.
The costs of maintenance and repairs of the property and equipment are
charged to expense as incurred.
NOTE 5 -- DEFERRED EXPENSES
Deferred expenses and the related amortization are set forth as follows:
<TABLE>
<CAPTION>
AMORT. ACCUM. UNAMORT.
ITEM COST PERIOD AMORT. BALANCE
---- -------- ---------- -------- --------
<S> <C> <C> <C> <C>
Syndication costs............................... $544,553 N/A N/A $544,553
Financing costs................................. $209,885 120 months $190,635 $ 19,250
Legal fees...................................... $ 45,000 60 months $ 45,000 $ 0
Reinvest. fees.................................. $ 25,000 82 months $ 21,171 $ 3,829
-------- -------- --------
$824,438 $256,806 $567,632
======== ======== ========
</TABLE>
Syndication costs are a nondeductable expense and therefore are not being
amortized.
NOTE 6 -- NOTES RECEIVABLE (PARTNERS' CAPITAL CONTRIBUTIONS)
The notes receivable represent capital contributions from the limited
partners. They are payable in quarterly installments of principal and interest
over either a four year or a seven year payment schedule, as elected by each
partner. The notes are unconditional and negotiable and bear interest at the
rate of 11.5% per annum. Interest has not been accrued on these notes for the
current year due to the transition of the general partners and the lack of
sufficient data available from the former general partner. Integrated Resources,
Inc. experienced serious financial difficulties and on February 13, 1990 filed a
voluntary petition for reorganization pursuant to the provisions of Chapter 11.
Notes receivable have been pledged as collateral to secure the Partnership
obligation of the Purchase Price payable to RFC and the note payable to Gaincred
III Corp. (See Notes 1C, 8, 9, and 10).
F-36
<PAGE> 498
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- MORTGAGE NOTES PAYABLE
The project is subject to a mortgage held by Legg Mason Real Estate Service
Inc. ("Mortgagee") in the original principal amount of $6,400,000. The mortgage
required monthly installments of $62,507 (based on a 35 year amortization
schedule), including interest at the rate of 11.5% per annum. The mortgage
matures on December 1, 1996, therefore the remaining principal balance is
classified as current liability in the financial statements.
As a condition to financing, the Partnership was required to supply a
letter of credit or to place up to $2 million in escrow, the amount of such
funds to decline based on the amount of the shortfall from predetermined
property performance levels. If two years from the date of disbursement of the
mortgage loan, the project had not yet achieved the predetermined property
performance levels, the mortgage loan would be reduced by 95% of the amount then
held in escrow drawn under the letter of credit (the remaining 5% to be paid to
the lender as a reinvestment fee). RFC had agreed to advance to the Partnership
the required letter of credit or escrow amount and in the event of a reduction
in the mortgage loan and payment of a reinvestment fee to the lender, RFC has
agreed to lend the total of such amounts to the Partnership on the same
conditions as such amounts would have been due under the mortgage loan. However,
the Partnership, and not RFC, posted the letter of credit. The Partnership also
posed its demand note as security for any drawings under the letter of credit
and Integrated Resources, Inc. guaranteed the obligation of the Partnership in
connection with the letter of credit. In 1988, as a result of meeting certain
predetermined property performance levels, the amount of the letter of credit
was reduced to $500,000.
As a result of the project not meeting certain predetermined performance
levels, on February 15, 1990, the escrow agent for the holder of the permanent
mortgage drew the entire amount of $500,000, available under the letter of
credit. 95% of the drawn amount was applied towards the reduction of principal
of the mortgage loan and the remaining 5% of the drawn down amount was paid to
Crown Life Insurance Company, the former Mortgagee, as a reinvestment fee. Due
to a reduction of the remaining principal balance, the Mortgagee agreed to
reduce the monthly installment payments from $62,507 to $57,835 effective April
1, 1990. Interest aggregating $662,606 was paid during the year under this
mortgage note. The mortgage note can be prepaid in full at a premium as
described in the mortgage note.
As a result of a drawdown under the letter of credit as described above,
the demand note in the amount of $500,000 became payable to Society National
Bank ("Society"), (formerly Ameritrust Company National Associates) on February
15, 1990. Pursuant to a plan of reorganization approved by the Bankruptcy Court
under Chapter 11 of the United States Bankruptcy Code ("Reorganization Plan"),
the demand note due to Society was converted into a term loan in the amount of
$500,000 (the "Second Mortgage"). The Second Mortgage requires monthly payments
of $4,491 (based on a 35 year amortization schedule), including interest at the
rate of 10.5% per annum and will mature on December 1, 1996. Interest in the
amount of $49,275 was paid on the demand note payable to Society.
Land, building and equipment, carried at a net book value of $4,831,198 are
pledged as collateral for the above mortgages.
NOTE 8 -- NOTE PAYABLE -- GAINCRED III CORP.
On December 22, 1998, the Partnership borrowed $1,069,925 from Gaincred III
Corp. evidenced by a single limited recourse promissory note. The note bears
interest at 12% per annum and is payable from the collections of certain limited
partners' notes as specified in the agreement. The proceeds of the borrowing
were used to paydown the Purchase Price (see Note 1C). The sole security for
this obligation is certain limited partners notes and their limited partnership
interests. The balance of the note as of December 31, 1995 was unable to be
confirmed during this period of transition. However, since the partners notes
are the only security for this note, it has an immaterial effect on the
financial statements taken as a whole.
F-37
<PAGE> 499
BRAMPTON ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- PURCHASE PRICE AND INTEREST ON PURCHASE PRICE PAYABLE
This amount represents the unpaid balance of the Purchase Price payable to
RFC. The obligation carried interest from December 31, 1985 at the rate of 14%
per annum, compounded quarterly (see Note 1C). Pursuant to the Reorganization
Plan, the unpaid balance of the Purchase Price was reduced by $194,000. The new
RFC note with a principal amount of $989,932 bears interest at 9.5% per annum
and is secured by certain notes from limited partners (see Note 1C). Subject to
certain restrictions, the new RFC note is to be paid from the proceeds of
collection of the notes receivable from limited partners, cash flows from
operations of the Project and from sales proceeds of the Project. The
Partnership has incurred default interest in the amount of $30,500 which shall
bear interest at the rate of 9.5% per annum and shall be payable on December 1,
1997. This default amount will be waived if no future events of default occur.
This interest is not included in the financial statements due to its contingency
on future events.
NOTE 10 -- RESTRICTED CASH
The restricted cash represented collections of notes receivable held in a
separate bank account subject to certain restrictions. This cash was used to
reduce the new RFC note (see Note 9) by $108,253 in principal and to pay the
interest accrued through August 7, 1995 of $131,213. In addition, $71,314 was
paid to reduce the Society National Bank Demand Note (see Note 7).
NOTE 11 -- MANAGEMENT FEE
The Partnership entered into a management contract with Resources Property
Management Corp. ("RPMC"), an affiliate of the general partner. The contract
called for a fee of 4% of the gross receipts, as defined in the contract. The
management contract with RPMC was terminated effective June 1, 1991. A new
management contract was entered into by the Partnership with Drucker & Falk
effective June 1, 1991 on similar terms as with RPMC. This contract was
terminated effective November 1, 1993. Upon termination of their contract the
Partnership owed RPMC $45,169 for their services. However, pursuant to the
Reorganization Plan, the amount due to RPMC was reduced to $10,000 which was
paid in 1993. On November 1, a new management contract was entered into with NPI
Property Management Corp. which is an affiliate of the new general partner.
Management fees paid to NPI Property Management Corp. for the year ended
December 31, 1995 are $89,077.00.
NOTE 12 -- PETITION FOR RELIEF UNDER CHAPTER 11
On December 18, 1991, the Partnership filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the Federal Bankruptcy Court
for the Southern District of New York. The Reorganization Plan developed by the
Partnership was confirmed by the Federal Bankruptcy Court for the Southern
District of New York, on September 15, 1992, effective September 30, 1992. Under
the Reorganization Plan, certain debts of the Partnership were reduced and the
terms of repayment modified as described in Notes 9, 10 and 11. In accordance
with the Internal Revenue Code, the reduction of the Purchase Price payable, as
described in Note 9 was applied to reduce the basis of the fixed assets, and the
reduction of the amounts due to Integrated and its affiliates (Note 11) and RPMC
(Note 10) which was recorded as cancellation of debt income in the 1992
financial statements.
F-38
<PAGE> 500
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 501
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 502
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 503
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
BUCCANEER TRACE LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 504
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Comparison of Tax-Deferral % Preferred OP
Units and Class I Preferred Stock.......... S-15
Certain Federal Income Tax Matters........... S-16
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Buccaneer
Trace Limited Partnership.................. S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-43
Voting Rights................................ S-43
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-61
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-62
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
CONFLICTS OF INTEREST.......................... S-71
Conflicts of Interest with Respect to the
Offer...................................... S-71
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-71
Competition Among Properties................. S-71
Features Discouraging Potential Takeovers.... S-71
Future Exchange Offers....................... S-71
</TABLE>
i
<PAGE> 505
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUR PARTNERSHIP............................... S-72
General...................................... S-72
Your Partnership and its Property............ S-72
Property Management.......................... S-72
Investment Objectives and Policies; Sale or
Financing of Investments................... S-72
Capital Replacement.......................... S-73
Borrowing Policies........................... S-73
Competition.................................. S-73
Legal Proceedings............................ S-73
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-75
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-77
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-78
LEGAL MATTERS.................................. S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 506
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Buccaneer Trace Limited Partnership. For each unit that you tender, you may
choose to receive of our Tax-Deferral % Partnership
Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred to as "Common
OP Units"), or $ in cash (subject, in each case to adjustment for
any distributions paid to you during the offer period). If you like, you
can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and
Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million,
total debt of $1,314 million and stockholders' equity of $1,394 million. On
a pro forma basis, giving effect to our recently completed merger with
Insignia Financial Group, Inc. and related transactions, as of June 30,
1998, AIMCO had total assets of $3,972 million, total debt of $1,626
million and stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 507
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. Your partnership has not paid any distributions
on your units since the inception of your partnership. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 508
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $0 per unit for the six months ended
June 30, 1998. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis).
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
S-3
<PAGE> 509
THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF
YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
S-4
<PAGE> 510
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
S-5
<PAGE> 511
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
S-6
<PAGE> 512
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
S-7
<PAGE> 513
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us. Although your
partnership did not make any distributions in 1998, it might make distributions
in the future.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
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COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no
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assurance as to our ability to complete future acquisitions. Although we seek
acquisitions and development activities that are accretive on a per share basis,
acquisitions and development activities may fail to perform in accordance with
our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner expects to
result from the offer. For example, a partner of your
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partnership would have no opportunity for liquidity unless he were to sell
his units in a private transaction. Any such sale would likely be at a very
substantial discount from the partner's pro rata share of the fair market
value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. Your partnership has not paid any distributions on your units
since the inception of your partnership. However, one class of
outstanding Partnership Preferred Units has prior distribution rights and
the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Your partnership has not paid
any distributions on your units since the inception of your partnership.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
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For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
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- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
There are a number of significant differences between Tax-Deferral %
Preferred OP Units and Class I Preferred Stock relating to, among other things,
the nature of the investment, voting rights, distributions, liquidity and
transfer and redemption rights. See "Comparison of Preferred OP Units and Class
I Preferred Stock" for a chart highlighting such differences.
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CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In addition, we considered the recent decline in the market for equity
securities, including, those of REITS, and the decline in the availability of
commercial mortgage financing. Although the direct capitalization method is a
widely-accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
S-16
<PAGE> 522
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the
S-17
<PAGE> 523
fairness opinion. Based on its analysis, and subject to the assumptions,
limitations and qualifications cited in its opinion, Stanger concluded that our
offer consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives 1/2 of
1% of the gross operating revenue of your partnership's property as a
partnership administration fee from your partnership and may receive
reimbursement for expenses generated in that capacity. The property manager
which received management fees of $74,140 in 1996, $79,405 in 1997 and $34,705
for the first six months of 1998. We have no current intention of changing the
fee structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
S-18
<PAGE> 524
YOUR PARTNERSHIP
Your Partnership and its Property. Buccaneer Trace Limited Partnership is a
South Carolina limited partnership which was formed on October 31, 1985 for the
purpose of owning and operating a single apartment property located in Savannah,
Georgia, known as "Buccaneer Trace Apartments". In 1985, it completed a private
placement of units that raised net proceeds of approximately $2,928,000.
Buccaneer Trace Apartments consists of 208 apartment units. Your partnership has
no employees.
Property Management. Since December 1990, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2013, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $6,987,056, payable to 1st Union and
Lehman, which bears interest at a rate of 8.94%. The mortgage debt is due in May
2004. Your partnership also has a second mortgage note outstanding of $142,290,
on the same terms as the first mortgage note. Your partnership's agreement of
limited partnership also allows your general partner to lend funds to your
partnership. Currently, the general partner of your partnership has no loan
outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 525
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 526
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 527
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 528
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
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<PAGE> 529
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
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<PAGE> 530
SUMMARY FINANCIAL INFORMATION OF BUCCANEER TRACE LIMITED PARTNERSHIP
The summary financial information of Buccaneer Trace Limited Partnership
for the six months ended June 30, 1998 and 1997 is unaudited. The summary
financial information for Buccaneer Trace Limited Partnership for the years
ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on financial
statements. This information should be read in conjunction with such financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Your Partnership"
included herein. See "Index to Financial Statements."
BUCCANEER TRACE LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(1) (1) (1) (1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............... $ 676,278 $ 695,809 $ 1,457,767 $ 1,508,799 $ 1,406,836 $ 1,390,362 statement
Net Income/(Loss)............ (121,053) (59,459) (200,301) (155,641) (314,499) (228,066) 0
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation... 2,394,272 2,663,600 2,545,748 2,803,924 3,071,115 3,287,674 3,566,788
Total Assets................. 3,090,467 3,337,832 3,265,830 3,679,927 3,899,775 4,389,927 4,544,923
Mortgage Notes Payable,
including Accrued
Interest................... 6,987,056 7,036,106 7,012,127 7,330,467 7,397,654 7,460,121 7,515,449
Partners'
Capital/(Deficit).......... (4,028,869) (3,766,974) (3,907,816) (3,707,515) (3,551,874) (3,237,375) (3,009,309)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 $0 $0
</TABLE>
- ---------------
(1) Prepared on a Federal Income Tax Basis.
S-25
<PAGE> 531
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 532
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 533
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Based on anticipated annualized distributions of
$ with respect to the Preferred OP Units, current annualized distributions
with respect to the Common OP Units of $2.25, and the 1998 distributions of $0
with respect to your units, distributions with respect to the Preferred OP Units
and Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that
S-28
<PAGE> 534
AIMCO's access to the public markets may prove challenging in light of the
volatility in both the equity and capital markets for REITs. Moody's assigned a
"ba3" rating to the Class I Preferred Stock proposed to be issued by AIMCO, and
confirmed its previous ratings related to AIMCO's preferred stock and debt in
its shelf registration statement. Moody's indicated that its rating action
continues to reflect AIMCO's increasing leveraged profile, including high levels
of secured debt and preferred stock, limited financial flexibility and
integration risks resulting from the merger with Insignia. Moody's also noted
AIMCO's high level of encumbered properties and material investments in loans to
highly leveraged partnerships in which AIMCO owns a general partnership
interest. At the same time, Moody's confirmed its existing rating on AIMCO's
existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
S-29
<PAGE> 535
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. Your Partnership
has not paid any distributions on your units since the inception of your
partnership.
S-30
<PAGE> 536
However, one class of outstanding Partnership Preferred Units has prior
distribution rights and the Tax-Deferral % Preferred OP Units rank
equal to six other outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future. Your Partnership
has not paid any distributions on your units since the inception of your
partnership.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
S-31
<PAGE> 537
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998 (iii) any extraordinary or material
adverse change in the financial, real estate or money markets or major
equity security indices in the United States such that there shall have
occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in
the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998 (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the sole judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
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institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 554
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 555
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 556
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 557
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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<PAGE> 558
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In addition, we considered the recent decline in the market for equity
securities including those of REIT, and the decline in the availability of
commercial mortgage financing. Although the direct capitalization method is a
widely accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership property................
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 560
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the cash offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to
the Common OP Units are $2.25, and distributions with respect to your units
for the six months ended June, 1998 were $2,640 (equivalent to $5,280 on an
annualized basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units, or distributions
of $ per year on the number of Tax-Deferral Common OP Units, that
you would receive in exchange for each of your partnership's units.
Therefore, distributions with respect to the Preferred OP Units and Common
OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
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Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also
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performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information
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contained in this Prospectus Supplement or that were provided, made
available, or otherwise communicated to Stanger by your partnership, AIMCO, or
the management of the partnership's property. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of your partnership. Stanger relied upon the representations of
your partnership and AIMCO concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, the determination and valuation of non-real
estate assets and liabilities of your partnership, the allocation of your
partnership's net values between the general partner, special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
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COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under South Carolina law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Buccaneer Trace Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash From Operations (as defined in of the AIMCO Operating Partnership's agreement of
your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership
The termination date of your partnership is December Agreement") or as provided by law. See "Description of
31, 2013. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, operate, The purpose of the AIMCO Operating Partnership is to
lease, manage, deal with, finance and refinance your conduct any business that may be lawfully conducted by
partnership's property for investment, capital a limited partnership organized pursuant to the
appreciation and the production of income. Subject to Delaware Revised Uniform Limited Partnership Act (as
restrictions contained in your partnership's agreement amended from time to time, or any successor to such
of limited partnership, your partnership may do all statute) (the "Delaware Limited Partnership Act"),
things necessary for or incidental to the protection provided that such business is to be conducted in a
and benefit of your partnership, including, without manner that permits AIMCO to be qualified as a REIT,
limitation, borrowing funds and creating liens. unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 61 units for cash and time to the limited partners and to other persons, and
notes to selected persons who fulfill the requirements to admit such other persons as additional limited
set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital
partnership. The capital contribution need not be equal contributions as may be established by the general
for all limited partners and no action or consent is partner in its sole discretion. The net capital
required in connection with the admission of any contribution need not be equal for all OP Unitholders.
additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership may not enter The AIMCO Operating Partnership may lend or contribute
into agreements with itself or any of its affiliates funds or other assets to its subsidiaries or other
for services, except for agreements for the management persons in which it has an equity investment, and such
and operations of your partnership's property and other persons may borrow funds from the AIMCO Operating
such agreements set forth in your partnership's Partnership, on terms and conditions established in the
agreement of limited partnership. The general partner sole and absolute discretion of the general partner. To
may also lend money to your partnership as the general the extent consistent with the business purpose of the
partner deems necessary for the payment of any AIMCO Operating Partnership and the permitted
partnership obligations and expenses, which loans, will activities of the general partner, the AIMCO Operating
be repaid with interest at the rate of 1% per annum Partnership may transfer assets to joint ventures,
over such general partners' own cost of funds (but in limited liability companies, partnerships,
no event to exceed the maximum legal rate); provided, corporations, business trusts or other business
however, that the general partner must first make entities in which it is or thereby becomes a
reasonable efforts to secure loans from an unaffiliated participant upon such terms and subject to such
third party. conditions consistent with the AIMCO Operating Part-
nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized, The AIMCO Operating Partnership Agreement contains no
on behalf of your partnership, to borrow funds, execute restrictions on borrowings, and the general partner has
and issue mortgage notes and other evidences of full power and authority to borrow money on behalf of
indebtedness and secure such indebtedness by mortgage, the AIMCO Operating Partnership. The AIMCO Operating
deed of trust, pledge or other lien; provided, however, Partnership has credit agreements that restrict, among
that a refinancing of your partnership's property will other things, its ability to incur indebtedness. See
be in the sole discretion of the managing general "Risk Factors -- Risks of Significant Indebtedness" in
partner. the accompanying Prospectus.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners or their duly authorized with a statement of the purpose of such demand and at
representative to review the books and records of your such OP Unitholder's own expense, to obtain a current
partnership upon reasonable notice during business list of the name and last known business, residence or
hours at the registered office of your partnership at mailing address of the general partner and each other
such limited partners' expense. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership is responsible All management powers over the business and affairs of
for management of your partnership's business and the AIMCO Operating Partnership are vested in AIMCO-GP,
assets and have all rights and powers generally Inc., which is the general partner. No OP Unitholder
conferred by law or which are necessary, advisable or has any right to participate in or exercise control or
consistent in connection therewith, subject to the management power over the business and affairs of the
limitations contained in your partnership's agreement AIMCO Operating Partnership. The OP Unitholders have
of limited partnership. No limited partner has the the right to vote on certain matters described under
right to take part in or interfere in any manner with "Comparison of Ownership of Your Units and AIMCO OP
the conduct or control of the business of your Units -- Voting Rights" below. The general partner may
partnership or the right or authority to act for or not be removed by the OP Unitholders with or without
bind your partnership. cause.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general
not liable to your partnership or the limited partners partner is not liable to the AIMCO Operating
and is indemnified for any loss or damage resulting Partnership for losses sustained, liabilities incurred
from any act or omission performed or omitted in good or benefits not derived as a result of errors in
faith, which does not constitute fraud, gross judgment or mistakes of fact or law of any act or
negligence or willful misconduct, pursuant of the omission if the general partner acted in good faith.
authority granted to promote the interests of your The AIMCO Operating Partnership Agreement provides for
partnership. Moreover, the general partner will not be indemnification of AIMCO, or any director or officer of
liable to your partnership or the limited partner AIMCO (in its capacity as the previous general partner
because any taxing authorities disallow or adjust any of the AIMCO Operating Partnership), the general
deduction or credits in your partnership income tax partner, any officer or director of general partner or
returns. the AIMCO Operating Partnership and such other persons
as the general partner may designate from and against
all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove the has exclusive management power over the business and
general partner upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general
owning more than 50% of the units. A general partner partner may not be removed as general partner of the
may resign at any time; provided, however that such AIMCO Operating Partnership by the OP Unitholders with
resignation does not cause the default under or result or without cause. Under the AIMCO Operating Partnership
in the acceleration of the payment of any loan secured Agreement, the general partner may, in its sole
by your partnership's property. The affirmative vote or discretion, prevent a transferee of an OP Unit from
written consent of all of the limited partners and the becoming a substituted limited partner pursuant to the
general partner is required for the election and AIMCO Operating Partnership Agreement. The general
admission of a substitute general partner. A limited partner may exercise this right of approval to deter,
partner may not transfer its units without the written delay or hamper attempts by persons to acquire a
consent of the general partner which may be withheld in controlling interest in the AIMCO Operating Partner-
sole and absolute discretion of the general partner. ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the unanimous action of the general in the AIMCO Operating Partnership Agreement, whereby
partner to effect a ministerial change which does not the general partner may, without the consent of the OP
materially affect the rights of the limited partners Unitholders, amend the AIMCO Operating Partnership
and as required by law. All other amendments must be Agreement, amendments to the AIMCO Operating
approved by the limited partners owning more than 50% Partnership Agreement require the consent of the
of the units and the general partner. Limited partners holders of a majority of the outstanding Common OP
owning at least 10% of the units have the power to Units, excluding AIMCO and certain other limited
propose amendments to your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to
limited partnership. the AIMCO Operating Partnership Agreement may be
proposed by the general partner or by holders of a
Majority in Interest. Following such proposal, the
general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives 1/2 of 1% of the gross operating revenue of capacity as general partner of the AIMCO Operating
your partnership's property as a partnership Partnership. In addition, the AIMCO Operating Part-
administration fee. Moreover, the general partner or nership is responsible for all expenses incurred
certain affiliates may be entitled to compensation for relating to the AIMCO Operating Partnership's ownership
additional services rendered. of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
No limited partner, unless it is deemed to be taking Except for fraud, willful misconduct or gross
part in the control of the business, is bound by, or is negligence, no OP Unitholder has personal liability for
personally liable for the expenses, liabilities or the AIMCO Operating Partnership's debts and
obligation of your partnership and his liability is obligations, and liability of the OP Unitholders for
limited solely to the amount of his capital the AIMCO Operating Partnership's debts and obligations
contribution to your partnership, together with the is generally limited to the amount of their invest-
undistributed share of the profits of your partnership ment in the AIMCO Operating Partnership. However, the
form time to time credited to its capital account and limitations on the liability of limited partners for
any money or other property wrongfully paid or conveyed the obligations of a limited partnership have not been
to him on account of his contribution. clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner of your partnership possesses an Unless otherwise provided for in the relevant
overriding fiduciary obligation to your partnership. partnership agreement, Delaware law generally requires
However, the general partner is not required to devote a general partner of a Delaware limited partnership to
all of its time or business efforts to the affairs of adhere to fiduciary duty standards under which it owes
your partnership, but it must devote so much of its its limited partners the highest duties of good faith,
time and attention to your partnership as is necessary fairness and loyalty and which generally prohibit such
and advisable to successfully manage the affairs of general partner from taking any action or engaging in
your partnership. In addition, any partner may engage any transaction as to which it has a conflict of
in or possess an interest in other business ventures of interest. The AIMCO Operating Partnership Agreement
every nature and description even if such ventures are expressly authorizes the general partner to enter into,
competitive with your partnership and are located in on behalf of the AIMCO Operating Partnership, a right
the market area or vicinity of your partnership's of first opportunity arrangement and other conflict
property. avoidance agreements with various affiliates of the
AIMCO Operating Partnership and the general partner, on
such terms as the general partner, in its sole and
absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders
partners have voting rights only Operating Partnership Agreement, have voting rights only with
with respect to the following the holders of the Preferred OP respect to certain limited matters
issues: sale or conversion to con- Units will have the same voting such as certain amendments and
dominiums or other disposition of rights as holders of the Common OP termination of the AIMCO Operating
all or substantially all of the Units. See "Description of OP Partnership Agreement and certain
assets of your partnership, Units" in the accompanying transactions such as the
amendments to your partnership's Prospectus. So long as any institution of bankruptcy
agreement of limited partnership, Preferred OP Units are outstand- proceedings, an assignment for the
termination of your partnership, ing, in addition to any other vote benefit of creditors and certain
removal of a general partner, or consent of partners required by transfers by the general partner of
election and admission of a law or by the AIMCO Operating its interest in the AIMCO Operating
substitute general partner and Partnership Agree- Part-
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
election of a trustee to liquidate ment, the affirmative vote or nership or the admission of a
and distribute your partnership's consent of holders of at least 50% successor general partner.
assets upon retirement of the last of the outstanding Preferred OP
remaining general partner. Each Units will be necessary for Under the AIMCO Operating Partner-
matter requires the majority vote effecting any amendment of any of ship Agreement, the general partner
of the holders of units for the provisions of the Partnership has the power to effect the
approval, except that the election Unit Designation of the Preferred acquisition, sale, transfer,
of a substitute general partner OP Units that materially and exchange or other disposition of
requires the unanimous vote of all adversely affects the rights or any assets of the AIMCO Operating
limited partners and the consent of preferences of the holders of the Partnership (including, but not
the general partner. Preferred OP Units. The creation or limited to, the exercise or grant
issuance of any class or series of of any conversion, option,
A general partner may cause the partnership units, including, privilege or subscription right or
dissolution of your partnership by without limitation, any partner- any other right available in
retiring unless, the remaining ship units that may have rights connection with any assets at any
general partner, or if none, all of senior or superior to the Preferred time held by the AIMCO Operating
the limited partners, agree to con- OP Units, shall not be deemed to Partnership) or the merger,
tinue your partnership and elect a materially adversely affect the consolidation, reorganization or
successor general partner by the rights or preferences of the other combination of the AIMCO
affirmative vote of all of the holders of Preferred OP Units. With Operating Partnership with or into
limited partners. respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such
Operations are to be distributed no provided, however, that at any time portion as the general partner may
less often than quarterly. The and from time to time on or after in its sole and absolute discretion
distributions payable to the the fifth anniversary of the issue determine, of Available Cash (as
partners are not fixed in amount date of the Preferred OP Units, the defined in the AIMCO Operating
and depend upon the operating AIMCO Operating Partnership may Partnership Agreement) generated by
results and net sales or refi- adjust the annual distribution rate the AIMCO Operating Partnership
nancing proceeds available from the on the Preferred OP Units to the during such quarter to the general
disposition of your partnership's lower of (i) % plus the annual partner, the special limited
assets. No limited partner has the interest rate then applicable to partner and the holders of Common
right to demand or receive property U.S. Treasury notes with a maturity OP Units on the record date
other than cash, although the of five years, and (ii) the annual established by the general partner
general partner may distribute dividend rate on the most recently with respect to such quarter, in
property other than cash. Your issued AIMCO non-convertible accordance with their respective
partnership has not made preferred stock which ranks on a interests in the AIMCO Operating
distributions in the past and is parity with its Class H Cumu- Partnership on such record date.
not projected to make distributions Holders of any other Pre-
in 1998.
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part-
substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the
such person if: (1) such transfer on any securities exchange. The transferability of the OP Units.
is not in contravention with any of Preferred OP Units are subject to Until the expiration of one year
the provision of your partnership's restrictions on transfer as set from the date on which an OP
agreement of limited partnership, forth in the AIMCO Operating Unitholder acquired OP Units,
including the investment Partnership Agreement. subject to certain exceptions, such
representations required to be made OP Unitholder may not transfer all
by each limited partner, (2) such Pursuant to the AIMCO Operating or any portion of its OP Units to
transfer will not cause a Partnership Agreement, until the any transferee without the consent
termination of your partnership for expiration of one year from the of the general partner, which
Federal income tax purposes, (3) a date on which a holder of Preferred consent may be withheld in its sole
written assignment has been duly OP Units acquired Preferred OP and absolute discretion. After the
executed and acknowledged by the Units, subject to certain expiration of one year, such OP
assignor and assignee, with the exceptions, such holder of Unitholder has the right to
written approval of the managing Preferred OP Units may not transfer transfer all or any portion of its
general partner which may be all or any portion of its Pre- OP Units to any person, subject to
withheld in the sole and absolute ferred OP Units to any transferee the satisfaction of certain
discretion of the managing gen- without the consent of the general conditions specified in the AIMCO
eral partner, (4) the assignee partner, which consent may be Operating Partnership Agreement,
represents it satisfies the withheld in its sole and absolute including the general partner's
suitability requirement appli- discretion. After the expiration of right of first refusal. See
cable to limited partners, (5) the one year, such holders of Preferred "Description of OP Units --
interest assigned is not less than OP Units has the right to transfer Transfers and Withdrawals" in the
1/2 unit, except in specified all or any portion of its Preferred accompanying Prospectus.
circumstances and (6) the as- OP Units to any person, subject to
signee and assignor satisfy other the satisfaction of
condi-
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
tions set for in your partnership's certain conditions specified in the After the first anniversary of
agreement of limited partnership. AIMCO Operating Partnership Agree- becoming a holder of Common OP
There are no redemption rights ment, including the general Units, an OP Unitholder has the
associated with your units. partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
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CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership property. Additionally, we desire
to purchase units at a low price and you desire to sell units at a high price.
The general partner of your partnership makes no recommendation as to whether
you should tender or refrain from tendering your units. Such conflicts of
interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives 1/2 of
1% of the gross operating revenue of your partnership's property as a
partnership administration fee from your partnership and may receive
reimbursement for expenses generated in its capacity as general partner. The
property manager received management fees of $74,140 in 1996, $79,405 in 1997
and 34,705 for the first six months of 1998. The AIMCO Operating Partnership has
no current intention of changing the fee structure for the manager of your
partnership property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
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YOUR PARTNERSHIP
GENERAL
Buccaneer Trace Limited Partnership is a South Carolina limited partnership
which raised net proceeds of approximately $2,928,000 in 1985 through a private
offering. The promoter for the private offering of your partnership was US
Shelter Corp. Insignia acquired your partnership in December 1990. AIMCO
acquired Insignia in October, 1998. There are currently a total of 56 limited
partners of your partnership and a total of 61 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the single
apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on October 31, 1985 for the purpose of owning
and operating a single apartment property located in Savannah, Georgia, known as
"Buccaneer Trace Apartments." Your partnership property consists of 208
apartment units. There are 48 one-bedroom apartments and 160 two-bedroom
apartments. The total rentable square footage of your partnership's property is
203,184 square feet. Your partnership's property had an average occupancy rate
of approximately 97.12% in 1996 and 97.12% in 1997. The average annual rent per
apartment unit is approximately $6,682.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1990, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during the first six months of 1998 was
$34,705.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2013
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
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<PAGE> 578
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $6,987,056, payable to 1st Union and Lehman, which bears interest
at a rate of 8.94%. The mortgage debt is due in May 2004. Your partnership also
has a second mortgage note outstanding of $142,290, on the same terms as the
first mortgage note. Your partnership's agreement of limited partnership also
allows the general partner of your partnership to lend funds to your
partnership. Currently, the general partner of your partnership has no loan
outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-73
<PAGE> 579
Below is selected financial information for Buccaneer Trace Limited
Partnership taken from the financial statements described above. See "Index to
Financial Statements."
<TABLE>
<CAPTION>
BUCCANEER TRACE LIMITED PARTNERSHIP
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(1) (1) (1) (1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 44,609 $ 135,379 $ 75,825 $ 275,421 $ 237,031 $ 492,839 $ 449,175
Land & Building.............. 7,940,910 7,860,143 7,917,338 7,825,419 7,749,591 7,639,287 7,607,149
Accumulated Depreciation..... (5,546,638) (5,196,543) (5,371,590) (5,021,495) (4,678,476) (4,351,613) (4,040,361)
Other Assets................. 651,586 538,853 644,257 600,582 591,629 609,414 528,960
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 3,090,467 $ 3,337,832 $ 3,265,830 $ 3,679,927 $ 3,899,775 $ 4,389,927 $ 4,544,923
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest................... 6,987,056 7,036,106 7,012,127 7,330,467 7,397,654 7,460,121 7,515,449
Other Liabilities............ 132,280 68,700 161,519 56,975 53,995 167,181 38,783
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... $ 7,119,336 $ 7,104,806 $ 7,173,646 $ 7,387,442 $ 7,451,649 $ 7,627,302 $ 7,554,232
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $(4,028,869) $(3,766,974) $(3,907,816) $(3,707,515) $(3,551,874) $(3,237,375) $(3,009,309)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BUCCANEER TRACE LIMITED PARTNERSHIP
-------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
-------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- -------- ---------- ---------- ---------- ---------- ----------
(1) (1) (1) (1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue........................ $ 630,114 $674,372 $1,392,578 $1,434,059 $1,324,845 $1,309,654 1993
Other Income.......................... 46,164 21,436 65,189 74,740 81,991 80,708 Income
--------- -------- ---------- ---------- ---------- ---------- ----------
Total Revenue................ $ 676,278 $695,809 $1,457,767 $1,508,799 $1,406,836 $1,390,362 statement
Operating Expenses.................... 246,728 235,838 596,474 490,811 559,750 463,538 information
General & Administrative.............. not
Depreciation.......................... 175,048 175,048 350,095 343,019 326,863 311,252 available
Interest Expense...................... 318,088 287,968 602,039 712,508 717,229 724,368
Property Taxes........................ 57,467 56,413 109,460 118,102 117,493 119,270
--------- -------- ---------- ---------- ---------- ---------- ----------
Total Expenses............... $ 797,331 $755,267 $1,658,068 $1,664,440 $1,721,335 $1,618,428 $ 0
--------- -------- ---------- ---------- ---------- ---------- ----------
Net Income............................ $(121,053) $(59,459) $ (200,301) $ (155,641) $ (314,499) $ (228,066) $ 0
========= ======== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Prepared on a Federal Income Tax Basis.
S-74
<PAGE> 580
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized a net loss of $121,053 for the six months ended
June 30, 1998, compared to a net loss of $59,459 for the six months ended June
30, 1997. The decrease in net income of $61,594, or 103.59% was primarily the
result of increases in operating and interest expenses. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$676,278 for the six months ended June 30, 1998, compared to $695,809 for the
six months ended June 30, 1997, a decrease of $19,531, or 2.81%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $246,728 for the
six months ended June 30, 1998, compared to $235,838 for the six months ended
June 30, 1997, an increase of $10,890 or 4.62%. Management expenses totaled
$34,705 for the six months ended June 30, 1998, compared to $36,300 for the six
months ended June 30, 1997, a decrease of $1,595, or 4.39%.
General and Administrative Expenses
Not Applicable
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $318,088 for the six months ended June 30, 1998, compared to
$287,968 for the six months ended June 30, 1997, an increase of $30,120, or
10.46%. The increase is due to circumstances surrounding the refinancing of the
mortgage in May of 1997.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized a net loss of $200,301 for the year ended
December 31, 1997, compared to a net loss of $155,641 for the year ended
December 31, 1996. The decrease in net income of $44,660, or 28.69% was
primarily the result of a decrease in rental revenues in 1997 and an increase in
operating expenses, offset by a decrease in interest expense.
Rental and other property revenues from the partnership's property totaled
$1,457,767 for the year ended December 31, 1997, compared to $1,508,799 for the
year ended December 31, 1996, a decrease of $51,032, or 3.38%.
Expenses
Operating expenses, consisting of utilities (net of reimbursements received
from tenants), contract services, turnover costs, repairs and maintenance,
advertising and marketing, and insurance, totaled $596,474
S-75
<PAGE> 581
for the year ended December 31, 1997, compared to $490,811 for the year ended
December 31, 1996, an increase of $105,663 or 21.53%. The increase is primarily
due to an increase in rental concessions and promotions to offset decreased
occupancy levels and is also due to gutter repair and painting projects at the
property. Management expenses totaled $72,925 for the year ended December 31,
1997, compared to $74,140 for the year ended December 31, 1996, a decrease of
$1,215, or 1.64%.
General and Administrative Expenses
Not Applicable
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $602,039 for the year ended December 31, 1997, compared to
$712,508 for the year ended December 31, 1996, a decrease of $110,469, or
15.50%. The decrease is primarily due to lower interest rates and a reduced
principal balance as a result of the refinancing of the mortgage.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $155,641 for the year ended
December 31, 1996, compared to a net loss of $314,499 for the year ended
December 31, 1995. The increase in net income of $158,858 was primarily the
result of an increase in rental revenues and a decrease in operating expenses.
These factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,508,799 for the year ended December 31, 1996, compared to $1,406,836 for the
year ended December 31, 1995, an increase of $101,963, or 7.25%. The increase
was primarily due to increased average occupancy levels during 1996 as compared
to 1995.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $490,811 for the
year ended December 31, 1996, compared to $559,750 for the year ended December
31, 1995, a decrease of $68,939 or 12.32%. The decrease is due to a decrease in
maintenance and marketing expenses at the property. Management expenses totaled
$74,140 for the year ended December 31, 1996, compared to $71,384 for the year
ended December 31, 1995, an increase of $2,756, or 3.86%.
General and Administrative Expenses
Not Applicable
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $712,508 for the year ended December 31, 1996, compared to
$717,229 for the year ended December 31, 1995, a decrease of $4,721, or .66%
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $44,609 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
S-76
<PAGE> 582
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership is not
liable to your partnership or the limited partners for any loss or damage
resulting from any act or omission performed or omitted in good faith, which
does not constitute fraud, gross negligence or willful misconduct, pursuant of
the authority granted to promote the interests of your partnership. Moreover,
the general partner will not be liable to your partnership or the limited
partner because any taxing authorities disallow or adjust any deduction or
credits in your partnership income tax returns. As a result, unitholders might
have a more limited right of action in certain circumstances than they would
have in the absence of such a provision in your partnership's agreement of
limited partnership. The general partner of your partnership is owned by AIMCO.
See "Conflicts of Interest".
Under your partnership's agreement of limited partnership, the general
partner of your partnership are indemnified for any loss or damage resulting
from any act or omission performed or omitted in good faith, which does not
constitute fraud, gross negligence or willful misconduct, pursuant of the
authority granted to promote the interests of your partnership. Such
indemnification includes reasonable fees and expenses of attorneys engaged by
the general partner in defense of such act or omission and other reasonable
costs and expenses of litigation and appeal. As part of its assumption of
liabilities in the consolidation, AIMCO will indemnify the general partner of
your partnership and their affiliates for periods prior to and following the
consolidation to the extent of the indemnity under the terms of your
partnership's agreement of limited partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has not paid any distributions during the last five years.
The original cost per unit was $54,348.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
S-77
<PAGE> 583
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- -------------
<S> <C>
1994........................................................ Not Available
1995........................................................ $ 11,480
1996........................................................ 12,480
1997........................................................ 9,000
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................................ $71,380
1996........................................................ 74,140
1997........................................................ 79,405
1998 (through June 30)...................................... 34,705
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
S-78
<PAGE> 584
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Balance Sheets as of December 31, 1997 and 1996
(unaudited)............................................... F-5
Statements of Operations for the years ended December 31,
1997, 1996 and 1995 (unaudited)........................... F-6
</TABLE>
F-1
<PAGE> 585
BUCCANEER TRACE LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET (UNAUDITED)
FEDERAL INCOME TAX BASIS
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 44,609
Receivables and Deposits and Other assets................... 280,487
Syndication Fees............................................ 371,099
Investment Property:
Land...................................................... $ 727,216
Buildings and related personal property................... 7,213,694
-----------
7,940,910
Accumulated depreciation.................................. (5,546,638) 2,394,272
----------- -----------
Total Assets...................................... $ 3,090,467
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and Other liabilities...................... $ 132,280
Notes Payable............................................... 6,987,056
Partners' Capital........................................... (4,028,869)
-----------
Total Liabilities and Partners' Capital........... $ 3,090,467
===========
</TABLE>
F-2
<PAGE> 586
BUCCANEER TRACE LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FEDERAL INCOME TAX BASIS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
--------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $ 630,114 $674,372
Other Income.............................................. 46,164 21,436
(Gain) Loss on Disp of Property........................... -- --
Casualty Gain/Loss........................................ -- --
--------- --------
Total Revenues.................................... 676,278 695,808
Expenses:
Operating Expenses........................................ 246,620 235,777
General and Administrative Expenses....................... 108 61
Depreciation Expense...................................... 175,048 175,048
Interest Expense.......................................... 318,088 287,968
Property Tax Expense...................................... 57,467 56,413
--------- --------
Total Expenses.................................... 797,331 755,267
--------- --------
Net (Income) Loss................................. $(121,053) $(59,459)
========= ========
</TABLE>
F-3
<PAGE> 587
BUCCANEER TRACE LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FEDERAL INCOME TAX BASIS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $(121,053) $ (59,459)
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 175,048 175,048
Loss on Casualty event................................. -- --
Extraordinary loss on refinancing...................... -- --
Changes in accounts:
Receivables and Deposits............................. (23,218) (124,449)
Accounts payable..................................... (29,239) 11,725
Net cash provided by (used in) operating
activities...................................... 1,538 2,865
--------- ---------
Investing Activities
Property improvements and replacements.................... (23,572) (34,724)
Net (increase)/decrease in restricted escrows............. 15,889 --
--------- ---------
Net cash provided by (used in) investing
activities...................................... (7,683) (34,724)
--------- ---------
Financing Activities
Payments on mortgage...................................... (25,071) (27,780)
Repayment of mortgage..................................... -- (7,048,875)
Proceeds from refinancing of mortgage..................... -- 7,040,000
Payment of Loan Costs..................................... -- (71,528)
--------- ---------
Net cash provided by (used in) financing
activities...................................... (25,071) (108,183)
--------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... (31,216) (140,042)
Cash and cash equivalents at beginning of year............ 75,825 275,421
--------- ---------
Cash and cash equivalents at end of period................ $ 44,609 $ 135,379
========= =========
</TABLE>
F-4
<PAGE> 588
BUCCANEER TRACE LIMITED PARTNERSHIP
BALANCE SHEETS (UNAUDITED)
FEDERAL INCOME TAX BASIS
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------
12/31/97 12/31/96
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 75,825 $ 275,421
Receivables and deposits and other assets................. 273,158 229,483
Syndication fees.......................................... 371,099 371,099
Investment Property:
Land................................................... 727,216 727,216
Buildings and related personal property................ 7,190,122 7,098,203
------------ ------------
7,917,338 7,825,419
Less: Accumulated depreciation......................... (5,371,590) (5,021,495)
------------ ------------
2,545,748 2,803,924
Total Assets...................................... $ 3,265,830 $ 3,679,927
============ ============
Liabilities and Partners' Deficit:
Accounts payable and other liabilities.................... $ 161,519 $ 56,975
Notes Payable............................................. 7,012,127 7,330,467
Partners' Capital (Deficit)................................. (3,907,816) (3,707,515)
------------ ------------
Total Liabilities and Partners' Deficit........... $ 3,265,830 $ 3,679,927
============ ============
</TABLE>
F-5
<PAGE> 589
BUCCANEER TRACE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS (UNAUDITED)
FEDERAL INCOME TAX BASIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental Income.......................................... $1,392,578 $1,434,059 $1,324,845
Other Income........................................... 65,189 74,740 81,991
---------- ---------- ----------
Total Revenues................................. 1,457,767 1,508,799 1,406,836
Expenses:
Operating Expenses..................................... 596,142 490,322 558,982
General and Administrative Expenses.................... 332 489 768
Depreciation Expense................................... 350,095 343,019 326,863
Interest Expense....................................... 602,039 712,508 717,229
Property Tax Expense................................... 109,460 118,102 117,493
---------- ---------- ----------
Total Expenses................................. 1,658,068 1,664,440 1,721,335
---------- ---------- ----------
Net Loss....................................... $ (200,301) $ (155,641) $ (314,499)
========== ========== ==========
</TABLE>
F-6
<PAGE> 590
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 591
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 592
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 593
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
BURGUNDY COURT ASSOCIATES, L.P.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 594
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Comparison of Tax-Deferral % Preferred OP
Units and Class I Preferred Stock.......... S-15
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and Our
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Burgundy
Court Associates, L.P...................... S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-36
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
DESCRIPTION OF PREFERRED OP UNITS.............. S-41
General...................................... S-41
Ranking...................................... S-41
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
</TABLE>
i
<PAGE> 595
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-76
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-77
LEGAL MATTERS.................................. S-78
EXPERTS........................................ S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 596
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Burgundy Court Associates, L.P. For each unit that you tender, you may
choose to receive of our Tax-Deferral % Partnership
Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred to as "Common
OP Units"), or $ in cash (subject, in each case to adjustment for
any distributions paid to you during the offer period). If you like, you
can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 597
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)............................... $ $ $ -- $ --
Third Quarter.......................... 41 30 15/16 -- --
Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter......................... 38 32 0.5625 0.5625
Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter......................... 29 3/4 26 0.4625 0.4625
First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter.......................... 22 18 3/8 0.4250 0.4250
Second Quarter......................... 21 18 3/8 0.4250 0.4250
First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 598
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $3,960 per unit for the six months
ended June 30, 1998 (equivalent to $7,920 on an annual basis). We will pay
fixed quarterly distributions of $ per unit on the
Tax-Deferral % Preferred OP Units before any distributions are paid to
holders of Tax-Deferral Common OP Units. We pay quarterly distributions on
the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the quarter ended June 30, 1998, we paid distributions of
$1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on
an annual basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units or
distributions of $ per year on the number of Tax-Deferral Common OP
Units that you would receive in an exchange for each of your partnership's
units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
S-3
<PAGE> 599
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
S-4
<PAGE> 600
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
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Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the Unites
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 in 759 apartment properties for third party owners and
affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
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<PAGE> 605
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
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POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland
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corporation, we are subject to various Maryland laws which may have the effect
of discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if our acquisition would be in our
stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. "Your
partnership may require funding from its partners. Continuation of its
operations may be dependent on additional funding from partners or from
other sources." Your partnership faces maturity or balloon payment dates on
its mortgage loans and must either obtain refinancing or sell its property.
If your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. In addition, continuation of your partnership without the offer
would deny you and your partners the benefits that your general partner
expects to result from the offer. For example, a partner of your
partnership would have no opportunity for
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liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
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TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
S-14
<PAGE> 610
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
There are a number of significant differences between Tax-Deferral %
Preferred OP Units and Class I Preferred Stock relating to, among other things,
the nature of the investment, voting rights, distributions, liquidity and
transfer and redemption rights. See "Comparison of Preferred OP Units and Class
I Preferred Stock" for a chart highlighting such differences.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
S-15
<PAGE> 611
exchange of your units for cash and OP Units will be treated, for Federal
income tax purposes, as a partial sale of such units for cash and as a partial
tax-free contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS", "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
S-16
<PAGE> 612
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
S-17
<PAGE> 613
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives a
monthly fee equal to 1% of the gross collected income from your partnership's
property as an administrative service fee from your partnership and may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $76,344 in 1996, $79,518 in 1997 and $40,874 for the
first six months of 1998. We have no current intention of changing the fee
structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Burgundy Court Associates, L.P. is a
Delaware limited partnership which was formed on January 31, 1985 for the
purpose of owning and operating a single apartment property
S-18
<PAGE> 614
located in Cincinnati, Ohio, known as "Burgundy Court Apartments". In 1985, it
completed a private placement of units that raised net proceeds of approximately
$1,850,000. Burgundy Court Apartments consists of 234 apartment units. Your
partnership has no employees.
Property Management. Since December 1991, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2008, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $3,175,948, payable to FNMA, which bears
interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your
partnership also has a second mortgage note outstanding of $112,855, on the same
terms as the first mortgage note. Your partnership's agreement of limited
partnership also allows your general partner to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 615
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 616
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 617
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 618
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 619
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 620
SUMMARY FINANCIAL INFORMATION OF BURGUNDY COURT ASSOCIATES, L.P.
The summary financial information of Burgundy Court Associates, L.P. for
the six months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Burgundy Court Associates, L.P. for the years ended December 31,
1997, 1996 and 1995, based on audited financial statements. This information
should be read in conjunction with such financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Your Partnership" included herein. See "Index to
Financial Statements."
BURGUNDY COURT ASSOCIATES, L.P.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues...................... $ 816,200 $ 781,267 $1,616,282 $1,546,366 $1,475,376 $1,419,600 $1,388,636
Net Income/(Loss)................... 199,383 177,806 282,771 237,063 227,738 100,939 125,490
BALANCE SHEET DATA:
Real Estate, Net of Accumulated
Depreciation...................... 1,864,865 1,910,837 1,901,127 1,952,521 2,025,938 1,933,755 1,938,853
Total Assets........................ 2,754,811 2,719,326 2,887,947 2,879,222 3,009,037 3,052,997 3,246,090
Mortgage Notes Payable, including
Accrued Interest.................. 3,157,510 3,231,974 3,197,062 3,267,806 3,332,637 3,392,050 3,446,497
Partners' Capital/(Deficit)......... (515,748) (620,096) (515,131) (597,902) (509,965) (597,703) (395,612)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
-------------------------- ----------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding............. $ 1.125 $1.85 $3,960 $3,960
</TABLE>
S-25
<PAGE> 621
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 622
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 623
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June 30, 1998 were $3,960 per unit (equivalent to
$7,920 on an annualized basis). This is equivalent to distributions of
$ per year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common OP
Units, that you would receive in an exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
S-28
<PAGE> 624
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation
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methods to estimate the fair market value of your partnership's assets. Instead,
such assets would be valued through negotiations with prospective purchasers (in
many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties may improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your Partnership may require funding from its partners. Continuation of
its operations may be dependent on additional funding from partners or from
other sources." Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
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- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
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<PAGE> 630
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
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All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought, or both). Notice of any such extension,
termination or amendment will promptly be disseminated in a manner reasonably
designed to inform unitholders of such change. In the case of an extension of
the offer, the extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., Denver, Colorado
time, on the next business day after the scheduled expiration date of the offer,
in accordance with Rule 14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
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If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
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VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, which change, in the sole judgment of the AIMCO Operating
Partnership, is or may be materially adverse to your partnership or the
value of your units to the AIMCO Operating Partnership, or the AIMCO
Operating Partnership shall have become aware of any facts relating to your
partnership, its indebtedness or its operations which, in the sole judgment
of the AIMCO Operating Partnership, has or may have material significance
with respect to the value of your partnership or the value of your units to
the AIMCO Operating Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998 (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P
500 Index, the Morgan Stanley REIT Index, or the price of the 10-year
Treasury Bond or the price of the 30-year Treasury Bond, in each case from
, 1998 (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the sole judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental agency,
or by any other person, before any governmental authority, court or
regulatory or administrative
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agency, authority or tribunal, which (i) challenges or seeks to challenge
the acquisition by the AIMCO Operating Partnership of the units, restrains,
prohibits or delays the making or consummation of the offer, prohibits the
performance of any of the contracts or other arrangements entered into by
the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating
Partnership) seeks to obtain any material amount of damages as a result of
the transactions contemplated by the offer, (ii) seeks to make the purchase
of, or payment for, some or all of the units pursuant to the offer illegal
or results in a delay in the ability of the AIMCO Operating Partnership to
accept for payment or pay for some or all of the units, (iii) seeks to
prohibit or limit the ownership or operation by AIMCO or any of its
affiliates of the entity serving as the general partner of your partnership
or to remove such entity as the general partner of your partnership, or
seeks to impose any material limitation on the ability of the AIMCO
Operating Partnership or any of its affiliates to conduct your
partnership's business or own such assets, (iv) seeks to impose material
limitations on the ability of the AIMCO Operating Partnership or any of its
affiliates to acquire or hold or to exercise full rights of ownership of
the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to
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acquire beneficial ownership of more than four percent of the units, or
shall have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than four percent of the
units, or (ii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect to a
merger, consolidation, purchase or lease of assets, debt refinancing or
other business combination with or involving your partnership.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to your partnership's business, or that certain
parts of your partnership's business might not have to be disposed of or other
substantial conditions complied with in order to obtain such approval or action,
any of which could cause the
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AIMCO Operating Partnership to elect to terminate the offer without
purchasing units hereunder. The AIMCO Operating Partnership's obligation to
purchase and pay for units is subject to certain conditions, including
conditions related to the legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts
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distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of such interest (the Common OP Units and such other
interests are collectively referred to herein as "Junior Units"); (ii) on a
parity with the Class B Partnership Preferred Units, the Class C Partnership
Preferred Units, the Class D Partnership Preferred Units, the Class G
Partnership Preferred Units, the Class H Partnership Preferred Units, and with
any other interest in the AIMCO Operating Partnership if the holders of such
interest and the Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accumulated, accrued and unpaid
distributions or stated preferences, without preference or priority of one over
the other ("Parity Units"); and (iii) junior to the Class F Partnership
Preferred Units and any other interest in the AIMCO Operating Partnership if the
holders of such interest shall be entitled to the receipt of distributions or
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Preferred OP Units ("Senior Units"). Junior
Units, Parity Units and Senior Units may be issued from time to time by the
AIMCO Operating Partnership without any approval or consent by holders of the
Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for
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such payment, for all past distribution periods, no distributions shall be
declared or paid or set apart for payment by the AIMCO Operating Partnership
with respect to any Parity Units. Unless full cumulative distributions
(including all accumulated, accrued and unpaid distributions) on the Preferred
OP Units have been declared and paid, or declared and set apart for payment, for
all past distribution periods, no distributions (other than distributions or
distributions paid in Junior Units or options, warrants or rights to subscribe
for or purchase Junior Units) may be declared or paid or set apart for payment
by the AIMCO Operating Partnership and no other distribution of cash or other
property may be declared or made, directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall any Junior Units be
redeemed, purchased or otherwise acquired (except for a redemption, purchase or
other acquisition of Common OP Units made for purposes of an employee incentive
or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for
any consideration (or any monies be paid to or made available for a sinking fund
for the redemption of any such Junior Units), directly or indirectly, by the
AIMCO Operating Partnership (except by conversion into or exchange for Junior
Units, or options, warrants or rights to subscribe for or purchase Junior
Units), nor shall any other cash or other property be paid or distributed to or
for the benefit of holders of Junior Units. Notwithstanding the foregoing
provisions of this paragraph, the AIMCO Operating Partnership shall not be
prohibited from (i) declaring or paying or setting apart for payment any
distribution on any Parity Units or (ii) redeeming, purchasing or otherwise
acquiring any Parity Units, in each case, if such declaration, payment,
redemption, purchase or other acquisition is necessary to maintain AIMCO's
qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations shall have been made in full
to the holders of Preferred OP Units and any Parity Units to enable them to
receive their Liquidation Preference, any Junior Units shall be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Preferred OP Units and any Parity Units shall not be entitled to share
therein.
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REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 642
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
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Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value, of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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<PAGE> 649
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash Consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 650
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the cash offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to
the Common OP Units are $2.25, and distributions with respect to your units for
the six months ended June 30, 1998 were $3,960 (equivalent to $7,920 on an
annualized basis). Therefore, distributions with respect to the Preferred OP
Units and Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to your
units. See "Comparison of Ownership of Your Units and AIMCO OP Units --
Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment
S-55
<PAGE> 651
properties although there are other ways to value real estate. A
liquidation in the future might generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
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<PAGE> 652
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion --
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<PAGE> 653
Assumptions, Limitations and Qualifications." We have agreed to indemnify
Stanger against certain liabilities arising out of Stanger's engagement to
prepare and deliver the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local
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<PAGE> 654
market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between the general partner, special limited partner and limited partners of
your partnership, the terms and conditions of any debt encumbering the
partnership's property, and the transaction costs and fees associated with a
sale of the property. Stanger also relied upon the assurance of your
partnership, AIMCO, and the management of the partnership's property that any
financial statements, budgets, pro forma statements, projections, capital
expenditure estimates, debt, value estimates and other information contained in
this Prospectus Supplement or provided or
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communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Delaware law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Burgundy Court Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Distributable Cash (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2008. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, develop, The purpose of the AIMCO Operating Partnership is to
operate, lease, manage and hold for investment and the conduct any business that may be lawfully conducted by
production of income your partnership's property. a limited partnership organized pursuant to the
Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as
agreement of limited partnership, your partnership may amended from time to time, or any successor to such
perform all acts necessary or appropriate in connection statute) (the "Delaware Limited Partnership Act"),
therewith and reasonably related thereto, including provided that such business is to be conducted in a
acquiring or borrowing money and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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<PAGE> 657
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 50 units for cash and time to the limited partners and to other persons, and
notes to selected persons who fulfill the requirements to admit such other persons as additional limited
set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital
partnership. The capital contribution need not be equal contributions as may be established by the general
for all limited partners and no action or consent is partner in its sole discretion. The net capital
required in connection with the admission of any contribution need not be equal for all OP Unitholders.
additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner, in connection with the management The AIMCO Operating Partnership may lend or contribute
of your partnership, are authorized to acquire goods funds or other assets to its subsidiaries or other
from or utilize the services of affiliates; provided persons in which it has an equity investment, and such
that the terms and conditions of such dealing are as persons may borrow funds from the AIMCO Operating
favorable as could reasonably be obtained from third Partnership, on terms and conditions established in the
parties offering similar goods and services of similar sole and absolute discretion of the general partner. To
quality and reliability. Your partnership may borrow the extent consistent with the business purpose of the
money on commercially reasonable terms from one or more AIMCO Operating Partnership and the permitted
of the partners without notification to any of the activities of the general partner, the AIMCO Operating
other partners and all or a portion of your Partnership may transfer assets to joint ventures,
partnership's property may be conveyed as security for limited liability companies, partnerships,
any such indebtedness; provided, however, that loans corporations, business trusts or other business
from limited partners may be made only to the extent entities in which it is or thereby becomes a
allowed by applicable law. The time and amount of the participant upon such terms and subject to such
repayment on any loan from a partner will be in the conditions consistent with the AIMCO Operating Part-
sole discretion of the general partner but the nership Agreement and applicable law as the general
principal and interest will be paid in full prior to partner, in its sole and absolute discretion, believes
any distribution of funds to the partners unless such to be advisable. Except as expressly permitted by the
loans contain a specific provision to the contrary and AIMCO Operating Partnership Agreement, neither the
such lending partner will be considered an unrelated general partner nor any of its affiliates may sell,
creditor with respect to such loan to the extent transfer or convey any property to the AIMCO Operating
allowed by applicable law. Loans from the general Partnership, directly or indirectly, except pursuant to
partner and their affiliates will accrue interest at transactions that are determined by the general partner
the greater of 2 1/2% over the prime interest rate in good faith to be fair and reasonable.
charged by the Third National Bank in Nashville, or the
actual interest cost in borrowing such amounts.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money and as security therefor to mortgage restrictions on borrowings, and the general partner has
all or any part of the real property your partnership. full power and authority to borrow money on behalf of
However, any amendment to your partnership wraparound the AIMCO Operating Partnership. The AIMCO Operating
note (as defined in your partnership's agreement of Partnership has credit agreements that restrict, among
limited partnership) requires the consent of holders of other things, its ability to incur indebtedness. See
51% of the outstanding units. "Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
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<PAGE> 658
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners to have access to the with a statement of the purpose of such demand and at
current list of the names and addresses of all limited such OP Unitholder's own expense, to obtain a current
partners at the principal office of your partnership at list of the name and last known business, residence or
all reasonable times. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
Subject to the limitations set forth in your All management powers over the business and affairs of
partnership's agreement of limited partnership and the AIMCO Operating Partnership are vested in AIMCO-GP,
under applicable law, the general partner of your Inc., which is the general partner. No OP Unitholder
partnership has the power on behalf of your partnership has any right to participate in or exercise control or
to do all things set forth in your partnership's agree- management power over the business and affairs of the
ment of limited partnership. The general partner AIMCO Operating Partnership. The OP Unitholders have
represent your partnership in all transactions with the right to vote on certain matters described under
third parties. No limited partner has any right or "Comparison of Ownership of Your Units and AIMCO OP
power to take part in any way in the management of your Units -- Voting Rights" below. The general partner may
partnership business except as may be expressly not be removed by the OP Unitholders with or without
provided in your partnership's agreement of limited cause.
partnership or by applicable statutes.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general
not liable to your partnership or any other partner for partner is not liable to the AIMCO Operating
any mistakes or errors in judgment of for any act or Partnership for losses sustained, liabilities incurred
omission believed by the general partner in good faith or benefits not derived as a result of errors in
to be within the scope of authority conferred upon it judgment or mistakes of fact or law of any act or
by your partnership's agreement of limited partnership. omission if the general partner acted in good faith.
In addition, your partnership will, to the extent The AIMCO Operating Partnership Agreement provides for
permitted by law, indemnify and save harmless the indemnification of AIMCO, or any director or officer of
general partner, against and from any personal loss, AIMCO (in its capacity as the previous general partner
liability (including attorneys' fee) or damage incurred of the AIMCO Operating Partnership), the general
by them as a result of any act or omission in its partner, any officer or director of general partner or
capacity as general partner unless such loss, liability the AIMCO Operating Partnership and such other persons
or damage results from gross negligence or willful as the general partner may designate from and against
misconduct of the general partners. all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other person from and against any and all claims and
demands whatso-
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ever. It is the position of the Securities and Exchange
Commission that indemnification of directors and
officers for liabilities arising under the Securities
Act is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner for cause upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general
owning 51% of the outstanding units. A general partner partner may not be removed as general partner of the
may not transfer, assign, sell, withdraw or otherwise AIMCO Operating Partnership by the OP Unitholders with
dispose of its interest unless it obtains the prior or without cause. Under the AIMCO Operating Partnership
written consent of those persons owning 51% of the Agreement, the general partner may, in its sole
units. Such consent is also necessary for the approval discretion, prevent a transferee of an OP Unit from
of a new general partner. A limited partner may not becoming a substituted limited partner pursuant to the
transfer his interests without the written consent of AIMCO Operating Partnership Agreement. The general
the general partner which may be withheld at the sole partner may exercise this right of approval to deter,
discretion of the general partner. delay or hamper attempts by persons to acquire a
controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the limited partner holding 51% of the in the AIMCO Operating Partnership Agreement, whereby
then outstanding units; provided that any amendment the general partner may, without the consent of the OP
which affects a partner's interest in the capital Unitholders, amend the AIMCO Operating Partnership
profits or Distributable Cash of your partnership may Agreement, amendments to the AIMCO Operating
be altered only with such partner's consent. On its own Partnership Agreement require the consent of the
motion or upon receipt of a written request for the holders of a majority of the outstanding Common OP
adoption of an amendment executed by limited partners Units, excluding AIMCO and certain other limited
owning at least 10% of the units then outstanding, the exclusions (a "Majority in Interest"). Amendments to
general partner will submit the proposed amendment to the AIMCO Operating Partnership Agreement may be
the limited partner for their approval. For the proposed by the general partner or by holders of a
purposes of obtaining the consent of the limited Majority in Interest. Following such proposal, the
partners, the general partner may require responses general partner will submit any proposed amendment to
within a specified time, which may not be less than the OP Unitholders. The general partner will seek the
thirty days, and failure to respond within such time written consent of the OP Unitholders on the proposed
will constitute a vote which is consistent with the amendment or will call a meeting to vote thereon. See
general partner's recommendation with respect to such "Description of OP Units -- Amendment of the AIMCO
proposal. Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives a monthly fee equal to 1% of the gross capacity as general partner of the AIMCO Operating
collected income from your partnership's property as an Partnership. In addition, the AIMCO Operating Part-
administrative service fee. Moreover, the general nership is responsible for all expenses incurred
partner or certain affiliates may be entitled to relating to the AIMCO Operating Partnership's ownership
compensation for additional services rendered. of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 660
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, the liability of each of the limited negligence, no OP Unitholder has personal liability for
partners for its share of the losses or debts of your the AIMCO Operating Partnership's debts and
partnership is limited to the total capital contribu- obligations, and liability of the OP Unitholders for
tions of such limited partners (subject to the terms the AIMCO Operating Partnership's debts and obligations
and conditions pursuant to which such capital is generally limited to the amount of their invest-
contribution is to be paid) plus, to the extent that ment in the AIMCO Operating Partnership. However, the
such limited partner rightfully received the return of limitations on the liability of limited partners for
such capital contribution, any sum, not in excess of the obligations of a limited partnership have not been
such return, necessary to discharge liabilities of your clearly established in some states. If it were
partnership to all creditors who extended credit before determined that the AIMCO Operating Partnership had
such return; provided that the liability with respect been conducting business in any state without compli-
to rightfully returned capital contributions is limited ance with the applicable limited partnership statute,
to one year from the date of such return. or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner must act as fiduciaries with Unless otherwise provided for in the relevant
respect to the assets and business of your partnership. partnership agreement, Delaware law generally requires
Under your partnership's agreement of limited a general partner of a Delaware limited partnership to
partnership, the general partner must devote such of adhere to fiduciary duty standards under which it owes
its time and that of its employees to your partnership its limited partners the highest duties of good faith,
business as may be reasonably necessary to carry on and fairness and loyalty and which generally prohibit such
conduct your partnership's business. The general general partner from taking any action or engaging in
partner must use its best effort to do all other things any transaction as to which it has a conflict of
and perform such other duties as may be reasonably interest. The AIMCO Operating Partnership Agreement
necessary to the successful operation of your expressly authorizes the general partner to enter into,
partnership. on behalf of the AIMCO Operating Partnership, a right
of first opportunity arrangement and other conflict
avoidance agreements with various affiliates of the
AIMCO Operating Partnership and the general partner, on
such terms as the general partner, in its sole and
absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-65
<PAGE> 661
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
51% of the outstanding units, the the holders of the Preferred OP respect to certain limited matters
limited partners may amend your Units will have the same voting such as certain amendments and
partnership's agreement of limited rights as holders of the Common OP termination of the AIMCO Operating
partnership, subject to certain Units. See "Description of OP Partnership Agreement and certain
limitations; dissolve and terminate Units" in the accompanying transactions such as the
your partnership; amend your Prospectus. So long as any institution of bankruptcy
partnership Wraparound Note (as Preferred OP Units are outstand- proceedings, an assignment for the
defined in your partnership's ing, in addition to any other vote benefit of creditors and certain
agreement of limited part- or consent of partners required by transfers by the general partner of
nership); remove a general partner law or by the AIMCO Operating its interest in the AIMCO Operating
for Partnership Agree- Part-
</TABLE>
S-66
<PAGE> 662
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
cause; approve the retirement of a ment, the affirmative vote or nership or the admission of a
general partner and the election of consent of holders of at least 50% successor general partner.
a successor general partner; and of the outstanding Preferred OP
approve or disapprove the sale of Units will be necessary for Under the AIMCO Operating Partner-
your partnership's property. effecting any amendment of any of ship Agreement, the general partner
the provisions of the Partnership has the power to effect the
A general partner may cause the Unit Designation of the Preferred acquisition, sale, transfer,
dissolution of your partnership by OP Units that materially and exchange or other disposition of
retiring unless, within ninety days adversely affects the rights or any assets of the AIMCO Operating
of such occurrence, the limited preferences of the holders of the Partnership (including, but not
partners owning 51% of the then Preferred OP Units. The creation or limited to, the exercise or grant
outstanding units vote to continue issuance of any class or series of of any conversion, option,
the business. If there are no partnership units, including, privilege or subscription right or
remaining general partners, all of without limitation, any partner- any other right available in
the limited partners must vote to ship units that may have rights connection with any assets at any
reform your partnership and by a senior or superior to the Preferred time held by the AIMCO Operating
vote of the holders of 51% of the OP Units, shall not be deemed to Partnership) or the merger,
outstanding units, elect one or materially adversely affect the consolidation, reorganization or
more successor general partners to rights or preferences of the other combination of the AIMCO
continue the business of your holders of Preferred OP Units. With Operating Partnership with or into
partnership. In the event of such respect to the exercise of the another entity, all without the
reformation, your partnership will above described voting rights, each consent of the OP Unitholders.
dissolve and all of the assets and Preferred OP Units shall have one
liabilities of your partnership (1) vote per Preferred OP Unit. The general partner may cause the
will be contributed to a new dissolution of the AIMCO Operating
partnership which will be formed Partnership by an "event of
and all parties to your withdrawal," as defined in the
partnership's agreement of limited Delaware Limited Partnership Act
partnership will become parties to (including, without limitation,
such new partnership. bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such
will be distributed quarterly by provided, however, that at any time portion as the general partner may
the general partners, on or about and from time to time on or after in its sole and absolute discretion
January 15, April 15, July 15 and the fifth anniversary of the issue determine, of Available Cash (as
October 15. The distributions date of the Preferred OP Units, the defined in the AIMCO Operating
payable to the partners are not AIMCO Operating Partnership may Partnership Agreement) generated by
fixed in amount and depend upon the adjust the annual distribution rate the AIMCO Operating Partnership
operating results and net sales or on the Preferred OP Units to the during such quarter to the general
refinancing proceeds available from lower of (i) % plus the annual partner, the special limited
the disposition of your interest rate then applicable to partner and the holders of Common
partnership's assets. No limited U.S. Treasury notes with a maturity OP Units on the record date
partner has any priority over any of five years, and (ii) the annual established by the general partner
other limited partner as to distri- dividend rate on the most recently with respect to such quarter, in
butions nor does any limited issued AIMCO non-convertible accordance with their respective
partner have the right to demand preferred stock which ranks on a interests in the AIMCO Operating
that distributions to it be in any parity with its Class H Cumu- Partnership on such record date.
form other than cash. Your Holders of any other Pre-
partnership has made distributions
in the
</TABLE>
S-67
<PAGE> 663
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
past and is projected to make lative Preferred Stock. Such ferred OP Units issued in the
distributions in 1998. distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part-
substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the
such person if: (1) the assignee on any securities exchange. The transferability of the OP Units.
agrees to be bound by the terms of Preferred OP Units are subject to Until the expiration of one year
your partnership's agreement of restrictions on transfer as set from the date on which an OP
limited partnership and represents forth in the AIMCO Operating Unitholder acquired OP Units,
that he is over 18 years of age, is Partnership Agreement. subject to certain exceptions, such
a citizen and resident of the OP Unitholder may not transfer all
United States, has sufficient Pursuant to the AIMCO Operating or any portion of its OP Units to
financial resources to maintain the Partnership Agreement, until the any transferee without the consent
interest and is acquiring the expiration of one year from the of the general partner, which
interest for investment and not for date on which a holder of Preferred consent may be withheld in its sole
distribution, (2) a written assign- OP Units acquired Preferred OP and absolute discretion. After the
ment has been duly executed and ac- Units, subject to certain expiration of one year, such OP
knowledged by the assignor and exceptions, such holder of Unitholder has the right to
assignee and has been delivered to Preferred OP Units may not transfer transfer all or any portion of its
the general partner, (3) the all or any portion of its Pre- OP Units to any person, subject to
written approval of the general ferred OP Units to any transferee the satisfaction of certain
partner which may be withheld in without the consent of the general conditions specified in the AIMCO
the sole and absolute discretion of partner, which consent may be Operating Partnership Agreement,
the general partner has been withheld in its sole and absolute including the general partner's
granted and (4) the assignor and discretion. After the expiration of right of first refusal. See
assignee have complied with such one year, such holders of Preferred "Description of OP Units --
other conditions as set forth in OP Units has the right to transfer Transfers and Withdrawals" in the
your partnership's agreement of all or any portion of its Preferred accompanying Prospectus.
limited partnership. The general OP Units to any person, subject to
partner the satisfaction of
</TABLE>
S-68
<PAGE> 664
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
will withhold its consent if the certain conditions specified in the After the first anniversary of
transferee is not authorized to AIMCO Operating Partnership Agree- becoming a holder of Common OP
acquire the units or does not have ment, including the general Units, an OP Unitholder has the
sufficient financial resources, the partner's right of first refusal. right, subject to the terms and
transfer would result in your conditions of the AIMCO Operating
partnership being taxed as a After a one-year holding period, a Partnership Agreement, to require
corporation, the transfer would holder may redeem Preferred OP the AIMCO Operating Partnership to
violate Federal or state securities Units and receive in exchange redeem all or a portion of the
laws or the transfer would cause a therefor, at the AIMCO Operating Common OP Units held by such party
termination of your partnership for Partnership's option, (i) subject in exchange for a cash amount based
tax purposes. to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
There are no redemption rights Liquidation Preference of the OP Units -- Redemption Rights" in
associated with your units. Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-69
<PAGE> 665
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives a
monthly fee equal to 1% of the gross collected income from your partnership's
property as an administrative service fee from your partnership and may be
reimbursed for expenses generated in that capacity. The property manager
received management fees of $76,344 in 1996, $79,518 in 1997 and $40,874 for the
first six months of 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the manager of your partnership's
property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-70
<PAGE> 666
YOUR PARTNERSHIP
GENERAL
Burgundy Court Associates, L.P. is a Delaware limited partnership which
raised net proceeds of approximately $1,850,000 in 1985 through a private
offering. The promoter for the private offering of your partnership was
Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO
acquired Insignia in October, 1998. There are currently a total of 53 limited
partners of your partnership and a total of 50 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the single
apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on January 31, 1985 for the purpose of owning
and operating a single apartment property located in Cincinnati, Ohio, known as
"Burgundy Court Apartments". Your partnership's property consists of 234
apartment units. There are 32 one-bedroom apartments, 140 two-bedroom apartments
and 62 three-bedroom apartments. The total rentable square footage of your
partnership's property is 210,574 square feet. Your partnership's property had
an average occupancy rate of approximately 94.44% in 1996 and 94.44% in 1997.
The average annual rent per apartment unit is approximately $6,569.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1991, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $76,344, $79,518 and $40,874, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2008
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-71
<PAGE> 667
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $3,175,948, payable to FNMA, which bears interest at a rate of
7.60%. The mortgage debt is due in November 2002. Your partnership also has a
second mortgage note outstanding of $112,855, on the same terms as the first
mortgage note. Your partnership's agreement of limited partnership also allows
the general partner of your partnership to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
S-72
<PAGE> 668
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. The 1994 and 1993 amounts have been
derived from audited financial statements which are not included in this
Prospectus Supplement. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY
BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER.
Below is selected financial information for Burgundy Court Associates, L.P.
derived from the financial statements described above. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
BURGUNDY COURT ASSOCIATES, L.P.
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 471,433 $ 366,665 $ 500,457 $ 481,291 $ 566,706 $ 689,475 $ 784,730
Land & Building.............. 5,584,074 5,439,513 5,525,069 5,385,930 5,278,642 4,972,436 4,680,566
Accumulated Depreciation..... (3,719,209) (3,528,675) (3,623,942) (3,433,409) (3,252,704) (3,038,681) (2,741,713)
Other Assets................. 418,512 441,824 486,363 445,410 416,393 429,767 522,507
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 2,754,810 $ 2,719,326 $ 2,887,947 $ 2,879,222 $ 3,009,037 $ 3,052,997 $ 3,246,090
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS'
DEFICIT
Mortgage & Accrued
Interest................... $ 3,146,083 $ 3,231,974 $ 3,197,062 $ 3,267,806 $ 3,332,637 $ 3,392,050 $ 3,446,497
Other Liabilities............ 124,475 107,448 206,016 209,318 186,365 258,650 195,205
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... $ 3,270,558 $ 3,339,422 $ 3,403,078 $ 3,477,124 $ 3,519,002 $ 3,650,700 $ 3,641,702
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $ (515,748) $ (620,096) $ (515,131) $ (597,902) $ (509,965) $ (597,703) $ (395,612)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BURGUNDY COURT ASSOCIATES, L.P.
------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue..................... $ 784,580 $ 752,734 $1,541,890 $1,468,687 $1,401,205 $1,346,203 $1,321,019
Other Income....................... 31,620 28,533 74,392 77,679 74,171 73,397 67,617
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue............. $ 816,200 $ 781,267 $1,616,282 $1,546,366 $1,475,376 $1,419,600 $1,388,636
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses................. 302,184 298,530 669,873 663,184 572,345 568,309 564,829
General & Administrative........... 28,940 21,368 52,232 50,169 53,039 37,443 56,930
Depreciation....................... 95,267 95,267 190,533 180,705 214,023 296,968 274,797
Interest Expense................... 126,110 129,830 296,624 302,991 308,410 313,127 304,875
Property Taxes..................... 64,316 58,466 124,249 112,254 99,821 102,816 99,872
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses............ $ 616,817 $ 603,461 $1,333,511 $1,309,303 $1,247,638 $1,318,661 $1,263,146
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income................ $ 199,383 $ 177,806 $ 282,771 $ 237,063 $ 227,738 $ 100,939 $ 125,490
========== ========== ========== ========== ========== ========== ==========
</TABLE>
S-73
<PAGE> 669
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $199,383 for the six months ended
June 30, 1998, compared to $177,806 for the six months ended June 30, 1997. The
increase in net income of $21,577, or 12.14% was primarily the result of an
increase in rental revenues. These factors are discussed in more detail in the
following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$816,200 for the six months ended June 30, 1998, compared to $781,267 for the
six months ended June 30, 1997, an increase of $34,933, or 4.47%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $302,184 for the
six months ended June 30, 1998, compared to $298,530 for the six months ended
June 30, 1997, an increase of $3,654 or 1.22%. Management expenses totaled
$40,874 for the six months ended June 30, 1998, compared to $39,028 for the six
months ended June 30, 1997, an increase of $1,846, or 4.73%.
General and Administrative Expenses
General and administrative expenses totaled $28,940 for the six months
ended June 30, 1998 compared to $21,368 for the six months ended June 30, 1997,
an increase of $7,572 or 35.44%. The increase was primarily the result of
increased license fees and increased general partner reimbursements.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $126,110 for the six months ended June 30, 1998, compared to
$129,830 for the six months ended June 30, 1997, a decrease of $3,720, or 2.87%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $282,771 for the year ended
December 31, 1997, compared to $237,063 for the year ended December 31, 1996.
The increase in net income of $45,708, or 19.28% was primarily the result of
increased revenues due to rental rate increases during 1997. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,616,282 for the year ended December 31, 1997, compared to $1,546,366 for the
year ended December 31, 1996, an increase of $69,916, or 4.52%.
S-74
<PAGE> 670
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $669,873 for the
year ended December 31, 1997, compared to $663,184 for the year ended December
31, 1996, an increase of $6,689 or 1.01%. Management expenses totaled $79,518
for the year ended December 31, 1997, compared to $76,344 for the year ended
December 31, 1996, an increase of $3,174, or 4.16%.
General and Administrative Expenses
General and administrative expenses totaled $52,232 for the year ended
December 31, 1997 compared to $50,169 for the year ended December 31, 1996, an
increase of $2,063 or 4.11%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $296,624 for the year ended December 31, 1997, compared to
$302,991 for the year ended December 31, 1996, a decrease of $6,367, or 2.10%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December 31,
1995
Net Income
Your partnership recognized net income of $237,063 for the year ended
December 31, 1996, compared to $227,738 for the year ended December 31, 1995, an
increase in net income of $9,325, or 4.09%.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,546,366 for the year ended December 31, 1996, compared to $1,475,376 for the
year ended December 31, 1995, an increase of $70,990, or 4.81%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $663,184 for the
year ended December 31, 1996, compared to $572,345 for the year ended December
31, 1995, an increase of $90,839 or 15.87%. The increase is due primarily to an
exterior property improvement project during 1996. Management expenses totaled
$76,344 for the year ended December 31, 1996, compared to $72,215 for the year
ended December 31, 1995, an increase of $4,129, or 5.72%. The increase is due
primarily to the increased revenues.
General and Administrative Expenses
General and administrative expenses totaled $50,169 for the year ended
December 31, 1996 compared to $53,039 for the year ended December 31, 1995, a
decrease of $2,870 or 5.41%. The decrease is primarily due to the timing of
audit fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $302,991 for the year ended December 31, 1996, compared to
$308,410 for the year ended December 31, 1995, a decrease of $5,419, or 1.76%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $471,433 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on
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<PAGE> 671
outstanding debt, capital improvements, and distributions paid to limited
partners. Your partnership has adequate sources of cash to finance its
operations, both on a short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership are
not liable to your partnership or any other partner for any mistakes or errors
in judgment of for any act or omission believed by the general partner in good
faith to be within the scope of authority conferred upon it by your
partnership's agreement of limited partnership. As a result, unitholders might
have a more limited right of action in certain circumstances than they would
have in the absence of such a provision in your partnership's agreement of
limited partnership. The general partner of your partnership is owned by AIMCO.
See "Conflicts of Interest".
Your partnership will, to the extent permitted by law, indemnify and save
harmless the general partner, against and from any personal loss, liability
(including attorneys' fee) or damage incurred by them as a result of any act or
omission in its capacity as general partner unless such loss, liability or
damage results from gross negligence or willful misconduct of the general
partner. As part of its assumption of liabilities in the consolidation, AIMCO
will indemnify the general partner of your partnership and their affiliates for
periods prior to and following the consolidation to the extent of the indemnity
under the terms of your partnership's agreement of limited partnership and
applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter. The
original cost per unit was $30,328.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $6,000
1995........................................................ 2,772
1996........................................................ 6,435
1997........................................................ 3,960
1998 (through June 30)...................................... 3,960
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner).
S-76
<PAGE> 672
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
included all monies paid to the general partner by our partnership, including
reimbursement of expenses) in respect of its capacity general partner interest
of partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995............................................ 44,298
1996............................................ 42,194
1997............................................ 42,463
1998 (through June 30)..........................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995............................................ $72,215
1996............................................ 76,344
1997............................................ 79,518
1998 (through June 30).......................... 40,874
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation and distributions that would have
been paid to the general partner of your partnership, or the company paid to the
property manager or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
S-77
<PAGE> 673
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Burgundy Court Associates, L.P. at December 31,
1997, 1996 and 1995, and for the years then ended, appearing in this Prospectus
Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
S-78
<PAGE> 674
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-6
Balance Sheets as of December 31, 1997 and 1996............. F-7
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1997 and 1996............ F-8
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-9
Notes to Financial Statements............................... F-10
Independent Auditors' Report................................ F-14
Balance Sheets as of December 31, 1996 and 1995............. F-15
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1996 and 1995............ F-16
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-17
Notes to Financial Statements............................... F-18
</TABLE>
F-1
<PAGE> 675
BURGUNDY COURT, LIMITED
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 471,433
Receivables and Deposits.................................... 92,010
Investments................................................. 0
Restricted Escrows.......................................... 254,750
Other Assets................................................ 71,752
Investment Property:
Land...................................................... $ 330,171
Building and related personal property.................... 5,253,903
-----------
5,584,074
Less: Accumulated depreciation............................ (3,719,209) 1,864,865
----------- -----------
Total Assets...................................... $ 2,754,810
===========
LIABILITIES AND PARTNERS' DEFICIT
Other Accrued Liabilities................................... 21,639
Property Taxes Payable...................................... 64,316
Tenant Security Deposits.................................... 38,520
Notes Payable............................................... 3,146,083
Partners' Deficit........................................... (515,748)
-----------
Total Liabilities and Partners' Deficit........... $ 2,754,810
===========
</TABLE>
See notes to interim financial statements.
F-2
<PAGE> 676
BURGUNDY COURT, LIMITED
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $784,580 $752,734
Other Income.............................................. 31,620 28,533
Gain (Loss) on Disposition of Property.................... -- --
Casualty Gain/Loss........................................ -- --
-------- --------
Total Revenues.................................... 816,200 781,267
Expenses:
Operating Expenses........................................ 302,184 298,530
General and Administrative Expenses....................... 28,940 21,368
Depreciation Expense...................................... 95,267 95,267
Interest Expense.......................................... 126,110 129,830
Property Tax Expense...................................... 64,316 58,466
-------- --------
Total Expenses.................................... 616,817 603,461
Net Income (Loss)................................. $199,383 $177,806
======== ========
</TABLE>
See notes to interim financial statements.
F-3
<PAGE> 677
BURGUNDY COURT, LIMITED
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ 199,383 $ 177,806
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 95,267 100,953
Changes in accounts:
Receivables and deposits and other assets............ 73,473 (9,276)
Accounts Payable and accrued expenses................ (81,541) (90,444)
--------- ---------
Net cash provided by (used in) operating
activities...................................... 286,582 179,039
Investing Activities:
Property improvements and replacements.................... (59,005) (53,583)
Net (increase)/decrease in restricted escrows............. (5,622) 7,177
--------- ---------
Net cash provided by (used in) investing
activities...................................... (64,627) (46,406)
Financing Activities:
Payments on mortgage...................................... (50,979) (47,259)
Partners' Distributions................................... (200,000) (200,000)
--------- ---------
Net cash provided by (used in) financing
activities...................................... (250,979) (247,259)
--------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... (29,024) (114,626)
Cash and cash equivalents at beginning of year.............. 500,457 481,291
--------- ---------
Cash and cash equivalents at end of period.................. $ 471,433 $ 366,665
========= =========
</TABLE>
See notes to interim financial statements.
F-4
<PAGE> 678
BURGUNDY COURT, LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Burgundy Court Limited
as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
NOTE B -- SUBSEQUENT EVENT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-5
<PAGE> 679
INDEPENDENT AUDITORS' REPORT
General Partners
Burgundy Court, Limited:
We have audited the accompanying balance sheets of Burgundy Court, Limited
as of December 31, 1997 and 1996 and the related statements of operations and
changes in partners' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, a well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Burgundy Court, Limited as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
February 20, 1998
F-6
<PAGE> 680
BURGUNDY COURT, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 500,457 $ 481,291
Receivables and deposits.................................... 161,263 113,559
Restricted escrows (Note B)................................. 249,128 251,130
Other assets................................................ 75,972 80,721
Investment properties (Note C):
Land...................................................... 330,171 330,171
Buildings and related personal property................... 5,194,898 5,055,759
----------- -----------
5,525,069 5,385,930
Less accumulated depreciation............................. (3,623,942) (3,433,409)
----------- -----------
1,901,127 1,952,521
----------- -----------
$ 2,887,947 $ 2,879,222
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 18,347 $ 19,315
Tenant security deposit liabilities....................... 39,480 41,177
Accrued taxes............................................. 122,506 111,431
Other liabilities......................................... 25,683 37,395
Mortgage notes payable (Note C)........................... 3,197,062 3,267,806
Partners' deficit........................................... (515,131) (597,902)
----------- -----------
$ 2,887,947 $ 2,879,222
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-7
<PAGE> 681
BURGUNDY COURT, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Rental income............................................. $1,541,890 $1,468,687
Other income.............................................. 74,392 77,679
---------- ----------
Total revenues......................................... 1,616,282 1,546,366
---------- ----------
Expenses:
Operating (Note D)........................................ 669,873 663,184
General and administrative (Note D)....................... 52,232 50,169
Depreciation.............................................. 190,533 180,705
Interest.................................................. 296,624 302,991
Property taxes............................................ 124,249 112,254
---------- ----------
Total expenses......................................... 1,333,511 1,309,303
---------- ----------
Net income................................................ 282,771 237,063
Distributions to partners................................... (200,000) (325,000)
Partners' deficit at beginning of year...................... (597,902) (509,965)
---------- ----------
Partners' deficit at end of year............................ $ (515,131) $ (597,902)
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
F-8
<PAGE> 682
BURGUNDY COURT, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 282,771 $ 237,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation......................................... 190,533 180,705
Amortization of discounts and loan costs............. 38,788 38,126
Change in accounts:
Receivables and deposits............................. (47,704) 4,941
Other assets......................................... (8,441) --
Accounts payable..................................... (968) 13,516
Tenant security deposit liabilities.................. (1,697) (5,175)
Accrued taxes........................................ 11,075 12,495
Other liabilities.................................... (11,712) _2,117
--------- ---------
Net cash provided by operating activities......... 452,645 483,788
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (139,139) (107,288)
Deposits to restricted escrows............................ (10,240) (10,396)
Receipts from restricted escrows.......................... 12,242 9,145
--------- ---------
Net cash used in investing activities............. (137,137) (108,539)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (96,342) (89,312)
Distributions to partners................................. (200,000) (325,000)
--------- ---------
Net cash used in financing activities............. (296,342) (414,312)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 19,166 (39,063)
Cash and cash equivalents at beginning of year.............. 481,291 520,354
--------- ---------
Cash and cash equivalents at end of year.................... $ 500,457 $ 481,291
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 257,836 $ 264,865
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
F-9
<PAGE> 683
BURGUNDY COURT, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Burgundy Court, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Delaware pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated January 31,
1985. The Partnership owns and operates a 234 unit apartment complex, Burgundy
Court Apartments, in Cincinnati, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is
managed by Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the straight-line method
based upon the estimated useful lives of various classes of assets; buildings
are depreciated over 25 years and the personal property assets are depreciated
over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1997 and 1996 include deferred loan costs of
$67,530 and $80,721, respectively, which are amortized over the term of the
related borrowing. They are shown net of accumulated amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
F-10
<PAGE> 684
BURGUNDY COURT, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the loan were placed into a capital improvement reserve
account to be used for certain capital improvements. The
capital improvements were completed in calendar year 1997
and excess funds were returned for property operations in
1997. .................................................... $ -- $ 12,242
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan. ................................................ 249,128 238,888
-------- --------
$249,128 $251,130
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$28,800, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $3,227,283 $3,323,625
Second mortgage note payable in interest only monthly
installments of $715, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 112,855 112,855
---------- ----------
Principal balance at year end............................... 3,340,138 3,436,480
Less unamortized discount................................... (143,076) (168,674)
---------- ----------
$3,197,062 $3,267,806
========== ==========
</TABLE>
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................... $ 103,924
1999................................................... 112,103
2000................................................... 120,927
2001................................................... 130,444
2002................................................... 2,872,740
----------
$3,340,138
==========
</TABLE>
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of prepayment or the present value of the
F-11
<PAGE> 685
BURGUNDY COURT, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
excess of interest which would be incurred at the stated rate under the notes
over the interest which would be incurred at the Treasury constant maturity for
U.S. Government obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1997 1996
TYPE OF TRANSACTION AMOUNT AMOUNT
- ------------------- ------- -------
<S> <C> <C>
Management fee........................................... $79,518 $76,344
Partnership administration fee........................... $14,501 $15,268
Reimbursement for services of affiliates................. $27,124 $26,926
Construction services reimbursement...................... $ 838 $ --
</TABLE>
F-12
<PAGE> 686
BURGUNDY COURT, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-13
<PAGE> 687
INDEPENDENT AUDITORS' REPORT
General Partners
Burgundy Court, Limited:
We have audited the accompanying balance sheets of Burgundy Court, Limited
as of December 31, 1996 and 1995 and the related statements of operations and
changes in partners' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Burgundy Court, Limited as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
February 25, 1997
F-14
<PAGE> 688
BURGUNDY COURT, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 481,291 $ 520,354
Restricted -- tenant security deposits.................... 41,177 46,352
Accounts receivable......................................... 2,333 227
Escrow for taxes............................................ 70,049 71,921
Restricted escrows (Note B)................................. 251,130 249,879
Other assets................................................ 80,721 94,366
Investment properties (Note C):
Land...................................................... 330,171 330,171
Buildings and related personal property................... 5,055,759 4,948,471
----------- -----------
5,385,930 5,278,642
Less accumulated depreciation............................. (3,433,409) (3,252,704)
----------- -----------
1,952,521 2,025,938
----------- -----------
$ 2,879,222 $ 3,009,037
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 19,315 $ 5,799
Tenant security deposits.................................. 41,177 46,352
Accrued taxes............................................. 111,431 98,936
Other liabilities......................................... 37,395 35,278
Mortgage notes payable (Note C)........................... 3,267,806 3,332,637
Partners' deficit........................................... (597,902) (509,965)
----------- -----------
$ 2,879,222 $ 3,009,037
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-15
<PAGE> 689
BURGUNDY COURT, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Rental income............................................. $1,468,687 $1,401,205
Other income.............................................. 77,679 74,171
---------- ----------
Total revenues......................................... 1,546,366 1,475,376
---------- ----------
Expenses:
Operating (Note D)........................................ 453,897 421,913
General and administrative (Note D)....................... 50,169 53,039
Maintenance............................................... 209,287 150,432
Depreciation.............................................. 180,705 214,023
Interest.................................................. 302,991 308,410
Property taxes............................................ 112,254 99,821
---------- ----------
Total expenses......................................... 1,309,303 1,247,638
---------- ----------
Net income.................................................. 237,063 227,738
Distributions to partners................................... (325,000) (140,000)
Partners' deficit at beginning of year...................... (509,965) (597,703)
---------- ----------
Partners' deficit at end of year............................ $ (597,902) $ (509,965)
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
F-16
<PAGE> 690
BURGUNDY COURT, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 237,063 $ 227,738
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 180,705 214,023
Amortization of discounts and loan costs............... 38,126 37,030
Change in accounts:
Restricted cash...................................... 5,175 2,236
Accounts receivable.................................. (2,106) (227)
Escrow for taxes..................................... 1,872 (12,190)
Accounts payable..................................... 13,516 (8,755)
Tenant security deposit liabilities.................. (5,175) (538)
Accrued taxes........................................ 12,495 (3,095)
Other liabilities.................................... 2,117 (59,897)
--------- ---------
Net cash provided by operating activities......... 483,788 396,325
--------- ---------
Cash flows from investing activities:
Property investments and replacements..................... (107,288) (306,206)
Deposits to restricted escrows............................ (10,396) (9,021)
Receipts from restricted escrows.......................... 9,145 21,166
--------- ---------
Net cash used in investing activities............. (108,539) (294,061)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (89,312) (82,797)
Distributions to partners................................. (325,000) (140,000)
--------- ---------
Net cash used in financing activities............. (414,312) (222,797)
--------- ---------
Net decrease in cash........................................ (39,063) (120,533)
Cash and cash equivalents at beginning of year.............. 520,354 640,887
--------- ---------
Cash and cash equivalents at end of year.................... $ 481,291 $ 520,354
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 264,865 $ 271,380
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
F-17
<PAGE> 691
BURGUNDY COURT, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Burgundy Court, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Delaware pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated January 31,
1985. The Partnership owns and operates a 234 unit apartment complex, Burgundy
Court Apartments, in Cincinnati, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is
managed by Insignia Management Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the straight-line method
based upon the estimated useful lives of various classes of assets; buildings
are depreciated over 25 years and the personal property assets are depreciated
over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1996 and 1995 consist of deferred loan costs
which are amortized over the term of the related borrowing. They are shown net
of accumulated amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of counsel's opinion, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
F-18
<PAGE> 692
BURGUNDY COURT, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the loan were placed into a capital improvement reserve
account to be used for certain capital improvements. The
capital improvements will be completed in calendar year
1997 and any excess funds will be returned for property
operations in 1997. ...................................... $ 12,242 $ 11,857
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan. ................................................ 238,888 238,022
-------- --------
$251,130 $249,879
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$28,800, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $3,323,625 $3,412,937
Second mortgage note payable in interest only monthly
installments of $715, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 112,855 112,855
---------- ----------
Principal balance at year end............................... 3,436,480 3,525,792
Less unamortized discount................................... (168,674) (193,155)
---------- ----------
$3,267,806 $3,332,637
========== ==========
</TABLE>
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 96,342
1998..................................................... 103,924
1999..................................................... 112,103
2000..................................................... 120,927
2001..................................................... 130,444
Thereafter............................................... 2,872,740
----------
$3,436,480
==========
</TABLE>
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to November 15, 1997. Thereafter the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of prepayment or the present value of the excess
of interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations.
F-19
<PAGE> 693
BURGUNDY COURT, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1996 1995
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- ------- -------
<S> <C> <C>
Management fee........................................... $76,344 $72,215
Partnership administration fee........................... $15,268 $14,442
Reimbursement for services of affiliates................. $26,926 $23,766
Construction fee......................................... $ -- $ 6,090
</TABLE>
F-20
<PAGE> 694
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: Burgandy Court Associates, L.P.
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
Burgandy Court Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the
General Partner and other affiliates and subsidiaries of AIMCO are referred to
herein collectively as the "Company"), is contemplating a transaction (the
"Offer") in which a minority of the outstanding limited partnership interests in
the Partnership (the "Units") will be acquired by the Purchaser in exchange for
an offer price per Unit of $ in cash, or Common OP Units of the
Purchaser, or Preferred OP Units of the Purchaser, or a combination of
any of such forms of consideration. The limited partners of the Partnership (the
"Limited Partners") will have the choice to maintain their current interest in
the Partnership or exchange their Units for any or a combination of such forms
of consideration. The amount of cash, Common OP Units or Preferred OP Units
offered per Unit is referred to herein as the "Offer Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 695
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 696
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 697
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
CALMARK/FORT COLLINS, LTD.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR OUR OFFER CONSIDERATION WILL BE REDUCED
OFFER AND TO RENDER AN OPINION AS TO THE FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR
FAIRNESS TO YOU OF THE OFFER CONSIDERATION PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR
FROM A FINANCIAL POINT OF VIEW. OFFER.
YOU WILL NOT PAY ANY FEES OR OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COMMISSIONS IF YOU TENDER YOUR UNITS. COLORADO TIME, ON , 1998, UNLESS
WE EXTEND THE DEADLINE.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 698
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Comparison of Tax-Deferral % Preferred OP
Units and Class I Preferred Stock.......... S-16
Certain Federal Income Tax Matters........... S-16
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-18
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-20
Summary Financial Information of AIMCO
Properties, L.P............................ S-21
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-23
Summary Financial Information of Calmark/Fort
Collins, Ltd............................... S-26
Comparative Per Unit Data.................... S-26
THE AIMCO OPERATING PARTNERSHIP................ S-27
RISK FACTORS................................... S-27
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-27
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-28
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-29
BACKGROUND AND REASONS FOR THE OFFER........... S-30
Background of the Offer...................... S-30
Alternatives Considered...................... S-31
Expected Benefits of the Offer............... S-32
THE OFFER...................................... S-33
Terms of the Offer; Expiration Date.......... S-33
Acceptance for Payment and Payment for
Units...................................... S-33
Procedure for Tendering Units................ S-34
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-37
Proration.................................... S-37
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-39
Dissenters' Rights........................... S-39
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment......................... S-42
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-43
Distributions................................ S-43
Allocation................................... S-44
Liquidation Preference....................... S-44
Redemption................................... S-45
Voting Rights................................ S-45
Restrictions on Transfer..................... S-45
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-48
CERTAIN FEDERAL INCOME TAX MATTERS............. S-51
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-51
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-51
Tax Consequences of Exchanging Units Solely
for Cash................................... S-52
Adjusted Tax Basis........................... S-52
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-53
Passive Activity Losses...................... S-53
Foreign Offerees............................. S-54
Certain Tax Consequences to Non-Tendering and
Partially-Tendering Unitholders............ S-54
VALUATION OF UNITS............................. S-55
FAIRNESS OF THE OFFER.......................... S-56
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-56
Fairness to Unitholders who Tender their
Units...................................... S-57
Fairness to Unitholders who do not Tender
their Units................................ S-58
Comparison of Consideration to Alternative
Consideration.............................. S-58
Allocation of Consideration.................. S-59
STANGER ANALYSIS............................... S-59
Experience of Stanger........................ S-60
Summary of Materials Considered.............. S-60
Summary of Reviews........................... S-61
Conclusions.................................. S-61
Assumptions, Limitations and
Qualifications............................. S-61
Compensation and Material Relationships...... S-62
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-63
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68
CONFLICTS OF INTEREST.......................... S-72
Conflicts of Interest with Respect to the
Offer...................................... S-72
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-72
Competition Among Properties................. S-72
Features Discouraging Potential Takeovers.... S-72
</TABLE>
i
<PAGE> 699
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Future Exchange Offers....................... S-72
YOUR PARTNERSHIP............................... S-73
General...................................... S-73
Your Partnership and its Property............ S-73
Property Management.......................... S-73
Investment Objectives and Policies; Sale or
Financing of Investments................... S-73
Capital Replacement.......................... S-74
Borrowing Policies........................... S-74
Competition.................................. S-74
Legal Proceedings............................ S-74
Selected Financial Information............... S-74
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-78
Distributions and Transfers of Units......... S-78
Beneficial Ownership of Interests in Your
Partnership................................ S-79
Compensation Paid to the General Partner and
its Affiliates............................. S-79
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-80
LEGAL MATTERS.................................. S-80
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
</TABLE>
ii
<PAGE> 700
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Calmark/Fort Collins, Ltd. For each unit that you tender, you may choose to
receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 701
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 702
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $14,705.88 per unit for the six
months ended June 30, 1998 (equivalent to $29,411.76 on an annual basis).
We will pay fixed quarterly distributions of $ per unit on
the Tax-Deferral % Preferred OP Units before any distributions are paid
to holders of Tax-Deferral Common OP Units. We pay quarterly distributions
on the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the six months ended June 30, 1998, we paid distributions
of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25
on an annual basis). This is equivalent to distributions of $ per year
on the number of Tax-Deferral % Preferred OP Units or distributions of
$ per year on the number of Tax-Deferral Common OP Units that you would
receive in exchange for each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
S-3
<PAGE> 703
THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF
YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of
units without the consent of the general partner. Such consent may be
withheld by the general partner in its sole discretion. The general partner
may withhold its consent if such transfer would result in the termination
of your partnership for tax purposes which will occur if more than 50% or
more of the total interests in your partnership are transferred within a
12-month period. If we acquire a significant percentage of the interest in
your partnership, the general partner may not consent to a transfer for a
12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
In addition, there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month
period, including sales or exchanges resulting from the offer, your
partnership will terminate for Federal income tax purposes. Any such
termination may, among other things, subject the assets of your partnership
to longer depreciable lives than those currently applicable to the assets
of your partnership. This would generally decrease the annual average
depreciation deductions allocable to you if you do not tender all of your
units (thereby increasing the taxable income allocable to your units each
year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF
YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX
SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
OFFER.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using
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our best judgment, but our valuation is just an estimate. Although the
direct capitalization method is a widely-accepted way of valuing real
estate, there are a number of other methods available to value real estate,
each of which may result in different valuations of the property. The
proceeds that you would receive if you sold your units to someone else or
if your partnership were actually liquidated might be higher or lower than
our offer consideration. An actual liquidation may also result in your
paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the
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expiration of the offer, and you must follow the instructions provided with
the Letter of Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
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FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if more than 50% or more of the total interests in
your partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence
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<PAGE> 709
on matters affecting the operation of the AIMCO Operating Partnership and third
parties may find it difficult to attempt to gain control or influence the
activities of our operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
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<PAGE> 710
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S.
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Treasury Department. Changes to the Federal laws and interpretations thereof
could adversely affect our investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your
partnership to sell its assets, distribute the net liquidation proceeds to
its partners in accordance with your partnership's agreement of limited
partnership, and then dissolve. Partners would be at liberty to use the net
liquidation proceeds after taxes for investment, business, personal or
other purposes, at their option. If your partnership were to sell its
assets and liquidate, you and your partners would not need to rely upon
capitalization of income or other valuation methods to estimate the fair
market value of your partnership's assets. Instead, such assets would be
valued through negotiations with prospective purchasers. However, a
liquidating sale of your partnership's property would be a taxable event
for you and your partners and could result in significant amounts of
taxable income to you and your partners. Under your partnership's agreement
of limited partnership, a sale of your partnership's assets and the
subsequent liquidation of your partnership could occur only with the
consent of the limited partners holding at least a majority of the units of
your partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your
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pro rata share of the fair market value of your partnership's property and
might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second alternative
would be for your partnership to continue its business without our offer. A
number of advantages could result from the continued operation of your
partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership may require funding from its partners. Continuation of its
operations may be dependent on additional funding from partners or from
other sources. Your partnership faces maturity or balloon payment dates on
its mortgage loans and must either obtain refinancing or sell its property.
If your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. In addition, continuation of your partnership without the offer
would deny you and your partners the benefits that your general partner
expects to result from the offer. For example, a partner of your
partnership would have no opportunity for liquidity unless he were to sell
his units in a private transaction. Any such sale would likely be at a very
substantial discount from the partner's pro rata share of the fair market
value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
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- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
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Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and
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expenses in making the offer (excluding the purchase price of the units
payable to you and your partners) will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
There are a number of significant differences between Tax-Deferral %
Preferred OP Units and Class I Preferred Stock relating to, among other things,
the nature of the investment, voting rights, distributions, liquidity and
transfer and redemption rights. See "Comparison of Preferred OP Units and Class
I Preferred Stock" for a chart highlighting such differences.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" OF THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS", "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-market mortgage interest rate. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a
widely-accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
</TABLE>
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<TABLE>
<S> <C>
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Consideration to Other Values. In evaluating the offer,
your general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
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- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you, from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, there is no limitation on the liability of your partnership's
general partners to your partnership or any of the limited partners for acts
performed in their capacity as general partner. The general partner of the AIMCO
Operating Partnership has no liability to the AIMCO Operating Partnership or any
of the holders of OP Units for acts performed by the general partner in good
faith.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner of your partnership but may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $30,621 in 1996, $32,886 in 1997 and $17,036 for the
first six months of 1998. We have no current intention of changing the fee
structure for your property manager.
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Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Calmark/Fort Collins, Ltd. is a
California limited partnership which was formed on January 29, 1982 for the
purpose of owning and operating a single apartment property located in Fort
Collins, Colorado, known as "Scotch Pines East." In 1982, it completed a private
placement of units that raised net proceeds of approximately $1,411,000. Scotch
Pines East consists of 102 apartment units. Your partnership has no employees.
Property Management. Since 1992, your partnership's property has been
managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2031, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $2,786,929, payable to Lehman, which
bears interest at a rate of 7.34%. The mortgage debt is due in December 2004.
Your partnership also has a second mortgage note outstanding of $2,786,929, on
the same terms as the first mortgage note. Your partnership's agreement of
limited partnership also allows your general partner to lend funds to your
partnership. Currently, the general partner of your partnership has no loan
outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
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SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-21
<PAGE> 721
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-22
<PAGE> 722
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-23
<PAGE> 723
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-24
<PAGE> 724
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-25
<PAGE> 725
SUMMARY FINANCIAL INFORMATION OF CALMARK/FORT COLLINS, LTD.
The summary financial information of Calmark/Fort Collins, Ltd. for the six
months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Calmark/Fort Collins, Ltd. for the years ended December 31,
1997, 1996, 1995, 1994 and 1993 is based on financial statements. This
information should be read in conjunction with such financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Your Partnership" included
herein. See "Index to Financial Statements."
CALMARK/FORT COLLINS, LTD.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues................ $ 336,537 $ 322,962 $ 661,502 $ 606,931 $ 577,843 $ 527,740 $ 477,630
Net Income/(Loss)............. (4,103) 8,501 (158,348) (15,197) (75,425) (101,898) (124,367)
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation.... 287,309 344,612 307,466 389,212 473,793 582,346 681,202
Total Assets.................. 583,884 512,894 1,128,407 567,931 640,874 752,099 856,415
Mortgage Notes Payable,
including Accrued
Interest.................... 2,804,056 1,892,499 2,800,000 1,890,607 1,908,194 1,926,141 1,940,681
Partners' Capital/(Deficit)... $(2,246,072) $(1,575,120) $(1,741,969) $(1,583,621) $(1,568,424) $(1,492,999) $(1,391,101)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 $14,705.88 $0
</TABLE>
S-26
<PAGE> 726
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer price from a financial
point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly,
although there can be no assurance, you might receive more consideration if you
do not tender your units and, instead, continue to hold your units and
ultimately receive proceeds from a liquidation of your partnership. However, you
may prefer to receive our offer consideration now rather than wait for uncertain
future net liquidation proceeds. Furthermore, your general partner has no
present intention to liquidate your partnership, and your partnership's
agreement of limited partnership does not require a sale of your partnership's
property by any particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-27
<PAGE> 727
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
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marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or Common OP Units may be
redeemed for shares of Class I Preferred Stock or Class A Common Stock.
Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common
Stock at the time at which OP Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June 30, 1998 were $3,460 per unit (equivalent to
$7,920 on an annualized basis). This is equivalent to distributions of
$ per year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common OP
Units that you would receive in an exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership
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were to be reduced, and you do not tender all of your units pursuant to our
offer, you will be treated as receiving a hypothetical distribution of cash
resulting from a decrease in your share of the liabilities of your partnership.
Any such hypothetical distribution of cash would be treated as a nontaxable
return of capital to the extent of your adjusted tax basis in your units and
thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. If there is a sale or exchange of 50% or more of the total interest in
capital and profits of your partnership within any 12-month period, including
sales or exchanges resulting from the offer, your partnership will terminate for
Federal income tax purposes. Any such termination may, among other things,
subject the assets of your partnership to longer depreciable lives than those
currently applicable to the assets of your partnership. This would generally
decrease the annual average depreciation deductions allocable to you if you do
not tender all of your units (thereby increasing the taxable income allocable to
your units each year), but would have no effect on the total depreciation
deductions available over the useful lives of the assets of your partnership.
Any such termination may also change (and possibly shorten) your holding period
with respect to your units that you choose to retain.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently own do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
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ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our
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offer would deny you and your partners the benefits of diversification into a
company which has a much larger and more diverse portfolio of apartment
properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY
DELAY IN MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
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All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
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If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
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VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, which change, in the sole judgment of the AIMCO Operating
Partnership, is or may be materially adverse to your partnership or the
value of your units to the AIMCO Operating Partnership, or the AIMCO
Operating Partnership shall have become aware of any facts relating to your
partnership, its indebtedness or its operations which, in the sole judgment
of the AIMCO Operating Partnership, has or may have material significance
with respect to the value of your partnership or the value of your units to
the AIMCO Operating Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998, (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P
500 Index, the Morgan Stanley REIT Index, or the price of the 10-year
Treasury Bond or the price of the 30-year Treasury Bond, in each case from
, 1998, (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the sole judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental agency,
or by any other person, before any governmental authority, court or
regulatory or administrative
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<PAGE> 739
agency, authority or tribunal, which (i) challenges or seeks to challenge
the acquisition by the AIMCO Operating Partnership of the units, restrains,
prohibits or delays the making or consummation of the offer, prohibits the
performance of any of the contracts or other arrangements entered into by
the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating
Partnership) seeks to obtain any material amount of damages as a result of
the transactions contemplated by the offer, (ii) seeks to make the purchase
of, or payment for, some or all of the units pursuant to the offer illegal
or results in a delay in the ability of the AIMCO Operating Partnership to
accept for payment or pay for some or all of the units, (iii) seeks to
prohibit or limit the ownership or operation by AIMCO or any of its
affiliates of the entity serving as the general partner of your partnership
or to remove such entity as the general partner of your partnership, or
seeks to impose any material limitation on the ability of the AIMCO
Operating Partnership or any of its affiliates to conduct your
partnership's business or own such assets, (iv) seeks to impose material
limitations on the ability of the AIMCO Operating Partnership or any of its
affiliates to acquire or hold or to exercise full rights of ownership of
the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to
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acquire beneficial ownership of more than four percent of the units, or
shall have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than four percent of the
units, or (ii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect to a
merger, consolidation, purchase or lease of assets, debt refinancing or
other business combination with or involving your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking
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<PAGE> 741
of any such action, there can be no assurance that any such additional
approval or action, if needed, would be obtained without substantial conditions
or that adverse consequences might not result to your partnership's business, or
that certain parts of your partnership's business might not have to be disposed
of or other substantial conditions complied with in order to obtain such
approval or action, any of which could cause the AIMCO Operating Partnership to
elect to terminate the offer without purchasing units hereunder. The AIMCO
Operating Partnership's obligation to purchase and pay for units is subject to
certain conditions, including conditions related to the legal matters discussed
in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
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RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any
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Parity Units shall be declared ratably in proportion to the respective
amounts of distributions accumulated, accrued and unpaid on the Preferred OP
Units and accumulated, accrued and unpaid on such Parity Units. Except as set
forth in the preceding sentence, unless distributions on the Preferred OP Units
equal to the full amount of accumulated, accrued and unpaid distributions have
been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof has been or contemporaneously is set apart
for such payment, for all past distribution periods, no distributions shall be
declared or paid or set apart for payment by the AIMCO Operating Partnership
with respect to any Parity Units. Unless full cumulative distributions
(including all accumulated, accrued and unpaid distributions) on the Preferred
OP Units have been declared and paid, or declared and set apart for payment, for
all past distribution periods, no distributions (other than distributions or
distributions paid in Junior Units or options, warrants or rights to subscribe
for or purchase Junior Units) may be declared or paid or set apart for payment
by the AIMCO Operating Partnership and no other distribution of cash or other
property may be declared or made, directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall any Junior Units be
redeemed, purchased or otherwise acquired (except for a redemption, purchase or
other acquisition of Common OP Units made for purposes of an employee incentive
or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for
any consideration (or any monies be paid to or made available for a sinking fund
for the redemption of any such Junior Units), directly or indirectly, by the
AIMCO Operating Partnership (except by conversion into or exchange for Junior
Units, or options, warrants or rights to subscribe for or purchase Junior
Units), nor shall any other cash or other property be paid or distributed to or
for the benefit of holders of Junior Units. Notwithstanding the foregoing
provisions of this paragraph, the AIMCO Operating Partnership shall not be
prohibited from (i) declaring or paying or setting apart for payment any
distribution on any Parity Units or (ii) redeeming, purchasing or otherwise
acquiring any Parity Units, in each case, if such declaration, payment,
redemption, purchase or other acquisition is necessary to maintain AIMCO's
qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations
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shall have been made in full to the holders of Preferred OP Units and any
Parity Units to enable them to receive their Liquidation Preference, any Junior
Units shall be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Preferred OP Units and any Parity Units
shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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<PAGE> 745
DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 746
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 747
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 748
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 749
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 750
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 751
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING UNITHOLDERS
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). It is possible that the AIMCO Operating Partnership's
acquisition of units pursuant to the offer could result in a Termination of your
partnership. If a purchase of units results in a Termination, the following
Federal income tax events will be deemed to occur with respect to such
Termination: the terminated Partnership (the "Old Partnership") will be deemed
to have contributed all of its assets (subject to its liabilities) (the
"Hypothetical Contribution") to a new partnership (the "New Partnership") in
exchange for an interest in the New Partnership and, immediately thereafter, the
Old Partnership will be deemed to have distributed interests in the New
Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership
and unitholders who do not tender all of their units (a "Remaining Unitholders")
in proportion to their respective interests in the Old Partnership in
liquidation of the Old Partnership.
A Remaining Unitholder will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Unitholders in the Old Partnership will carry over
intact into the New Partnership. Any Termination may change (and possibly
shorten) a Remaining Unitholder's holding period with respect to its units in
your partnership for Federal income tax purposes.
The New Partnership's adjusted tax basis in its assets will carry over from
the Old Partnership's basis in such assets immediately before the Termination.
Any Termination may also subject the assets of the New Partnership to
depreciable lives in excess of those currently applicable to the Old
Partnership. This would generally decrease the annual average depreciation
deductions allocable to the Remaining Unitholders following consummation of the
offer (thereby increasing the taxable income allocable to their retained units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership.
Section 704(c) of the Code will apply to future allocation of income, gain,
loss and deductions with respect to any New Partnership assets among the AIMCO
Operating Partnership and the Remaining Unitholders following the consummation
of the offer only to the extent that such assets were Section 704(c) property in
the hands of the Old Partnership immediately prior to the Hypothetical
Contribution. Moreover, subject to the Code's anti-abuse regulations, the New
Partnership will not be required to apply the same Section 704(c) allocation
method applied by the Old Partnership. The Hypothetical Contribution will not
trigger a new five-year holding period for purposes of measuring
post-contribution appreciation of assets for the unitholder who contributed such
assets.
Elections as to certain tax matters previously made by the Old Partnership
prior to Termination will not be applicable to the New Partnership unless the
New Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all unitholders. In the case of a Remaining Unitholder reporting on a
tax year other than a calendar year, the closing of your partnership's taxable
year may result in more than 12 months' taxable income or loss of the Old
Partnership being includible in such unitholder's taxable income for the year of
Termination.
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YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to
the Common OP Units are $2.25, and distributions with respect to your units
for the six months ended June 30, 1998 were $3,460 (equivalent to $7,920 on
an annualized basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common
OP Units, that you would receive in exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to
your units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
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Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also
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performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of
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your partnership. Stanger relied upon the representations of your
partnership and AIMCO concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, the determination and valuation of non-real
estate assets and liabilities of your partnership, the allocation of your
partnership's net values between the general partner, special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under California law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Scotch Pines East. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of
your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership
The termination date of your partnership is December Agreement") or as provided by law. See "Description of
31, 2031. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, directly The purpose of the AIMCO Operating Partnership is to
or indirectly, develop, own, hold, maintain, operate conduct any business that may be lawfully conducted by
for the production of income and dispose of property a limited partnership organized pursuant to the
situated in the United States. Subject to restrictions Delaware Revised Uniform Limited Partnership Act (as
contained in your partnership's agreement of limited amended from time to time, or any successor to such
partnership, your partnership may perform all acts statute) (the "Delaware Limited Partnership Act"),
necessary or appropriate in connection therewith and provided that such business is to be conducted in a
reasonably related thereto, including borrowing money, manner that permits AIMCO to be qualified as a REIT,
creating liens and investing funds in financial unless AIMCO ceases to qualify as a REIT. The AIMCO
instruments. Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not less than 20 nor more than 34 time to the limited partners and to other persons, and
units for cash and notes to selected persons who to admit such other persons as additional limited
fulfill the requirements set forth in your partners, on terms and conditions and for such capital
partnership's agreement of limited partnership. The contributions as may be established by the general
capital contribution need not be equal for all limited partner in its sole discretion. The net capital
partners and no action or consent is required in contribution need not be equal for all OP Unitholders.
connection with the admission of any additional limited No action or consent by the OP Unitholders is required
partners. in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
The general partner is also authorized to issue by the AIMCO GP" in the accompanying Prospectus.
additional units for sale from time to time, the Subject to Delaware law, any additional partnership
number, price and terms of which shall be determined at interests may be issued in one or more classes, or one
the sole discretion of the general partner. In certain or more series of any of such classes, with such
circumstances set forth in your partnership's agreement designations, preferences and relative, partici-
of limited partnership, limited partners who purchased pating, optional or other special rights, powers and
the units described in the previous paragraph may duties as shall be determined by the general partner,
possess preemptive rights in connection with the sale in its sole and absolute discretion without the
of additional units. approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership may contract The AIMCO Operating Partnership may lend or contribute
with affiliated persons for the management or funds or other assets to its subsidiaries or other
supervision of any or all of the assets of your persons in which it has an equity investment, and such
partnership or for the performance of any other persons may borrow funds from the AIMCO Operating
services which the general partner deem necessary or Partnership, on terms and conditions established in the
advisable for the operation of your partnership. Any sole and absolute discretion of the general partner. To
and all compensation paid to such affiliated persons in the extent consistent with the business purpose of the
connection with services performed for your partnership AIMCO Operating Partnership and the permitted
must be reasonable and fair to your partnership and the activities of the general partner, the AIMCO Operating
partners. Such contracts between your partnership and Partnership may transfer assets to joint ventures,
the general partner or any affiliates must provide that limited liability companies, partnerships,
they may be cancelled at any time by your partnership corporations, business trusts or other business
without penalty upon 60 days prior written notice. In entities in which it is or thereby becomes a
addition, the general partner and its affiliates may participant upon such terms and subject to such
lend money to your partnership which will be repaid in conditions consistent with the AIMCO Operating Part-
accordance with the terms of the advances out of the nership Agreement and applicable law as the general
gross receipts of your partnership with interest at the partner, in its sole and absolute discretion, believes
then prevailing commercial rate or at the highest rate to be advisable. Except as expressly permitted by the
permitted by the applicable usury law, whichever is AIMCO Operating Partnership Agreement, neither the
less. Your partnership may lend working capital general partner nor any of its affiliates may sell,
reserves which are not needed to meet partnership transfer or convey any property to the AIMCO Operating
expenses or make distributions as determined in the Partnership, directly or indirectly, except pursuant to
sole discretion of the general partner to affiliates of transactions that are determined by the general partner
the general partner. Such loans are payable on demand in good faith to be fair and reasonable.
and bear interest at the then prevailing commercial
rate of interest, are otherwise commercially reasonable
and in the aggregate, do not exceed the amount of
excess working capital reserves of your partnership.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money on the credit of and enter into restrictions on borrowings, and the general partner has
obligations, recourse and nonrecourse, on behalf of full power and authority to borrow money on behalf of
your partnership and to give as security therefore any the AIMCO Operating Partnership. The AIMCO Operating
partnership's property. Partnership has credit agreements that restrict, among
other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners or their designated with a statement of the purpose of such demand and at
representative to inspect and, at their sole cost and such OP Unitholder's own expense, to obtain a current
expense, copy the contents of the books and records of list of the name and last known business, residence or
your partnership at the principal place of business of mailing address of the general partner and each other
your partnership during normal business hours. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership manages and All management powers over the business and affairs of
controls your partnership and all aspects of its the AIMCO Operating Partnership are vested in AIMCO-GP,
business. The general partner has all the rights and Inc., which is the general partner. No OP Unitholder
powers which may be possessed by a general partner has any right to participate in or exercise control or
under California law. Subject to the limitations management power over the business and affairs of the
contained in your partnership's agreement of limited AIMCO Operating Partnership. The OP Unitholders have
partnership, the general partner has the power to the right to vote on certain matters described under
perform acts, upon such terms and conditions as the "Comparison of Ownership of Your Units and AIMCO OP
general partner deem appropriate and in furtherance of Units -- Voting Rights" below. The general partner may
your partnership's business. The limited partners have not be removed by the OP Unitholders with or without
no right to participate in the management or control of cause.
your partnership, to act on behalf of your partnership,
to bind your partnership, or, except as specifically In addition to the powers granted a general partner of
authorized in your partnership's agreement of limited a limited partnership under applicable law or that are
partnership, to vote upon any matter involving your granted to the general partner under any other
partnership. provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Notwithstanding anything to the contrary set forth in
does not limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general
your partnership or the limited partners for any act partner is not liable to the AIMCO Operating
performed in its capacity as general partner. However, Partnership for losses sustained, liabilities incurred
your partnership's agreement of limited partnership or benefits not derived as a result of errors in
does provide that the general partner of your judgment or mistakes of fact or law of any act or
partnership and its affiliates are entitled to omission if the general partner acted in good faith.
indemnification from any expense, liability or loss, The AIMCO Operating Partnership Agreement provides for
including attorneys' fees incurred in connection with indemnification of AIMCO, or any director or officer of
the defense of any action, based on any act or omission AIMCO (in its capacity as the previous general partner
by the general partner within the scope of the of the AIMCO Operating Partnership), the general
authority conferred by your partnership's agreement of partner, any officer or director of general partner or
limited partnership, including all such liabilities the AIMCO Operating Partnership and such other persons
under Federal and state securities laws as permitted by as the general partner may designate from and against
law, except for acts or omissions constituting fraud, all losses, claims, damages, liabilities, joint or
bad faith, willful misconduct or gross negligence. several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove the has exclusive management power over the business and
general partner upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general
owning a majority of the outstanding units and elect a partner may not be removed as general partner of the
substitute general partner if no general partner AIMCO Operating Partnership by the OP Unitholders with
remains. Subject to limitations set forth in your or without cause. Under the AIMCO Operating Partnership
partnership's agreement of limited partnership, the Agreement, the general partner may, in its sole
general partner may withdraw from your partnership at discretion, prevent a transferee of an OP Unit from
any time. A limited partner may not transfer its becoming a substituted limited partner pursuant to the
interests without the written consent of the general AIMCO Operating Partnership Agreement. The general
partner which may be withheld at the sole discretion of partner may exercise this right of approval to deter,
the general partner. delay or hamper attempts by persons to acquire a
controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to add in the AIMCO Operating Partnership Agreement, whereby
representations, duties or obligations of the general the general partner may, without the consent of the OP
partner or surrender a right or power granted to the Unitholders, amend the AIMCO Operating Partnership
general partner, effect a ministerial change which does Agreement, amendments to the AIMCO Operating
not materially affect the rights of the limited Partnership Agreement require the consent of the
partners and as required by law. All other amendments holders of a majority of the outstanding Common OP
must be approved by the limited partners owning more Units, excluding AIMCO and certain other limited
than 50% of the units and the general partner. exclusions (a "Majority in Interest"). Amendments to
Amendments of provisions that require the consent of a the AIMCO Operating Partnership Agreement may be
greater percentage than a majority may be amended only proposed by the general partner or by holders of a
the percentage required in such provisions. In Majority in Interest. Following such proposal, the
addition, any amendment that adversely affects a general partner will submit any proposed amendment to
partner or partners must be approved by the affected the OP Unitholders. The general partner will seek the
parties. written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives no fees for its services as general partner. capacity as general partner of the AIMCO Operating
Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part-
be entitled to compensation for additional services nership is responsible for all expenses incurred
rendered. relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, no limited partner is personally liable negligence, no OP Unitholder has personal liability for
for claims by creditors of your partnership, except as the AIMCO Operating Partnership's debts and
provided under California law. obligations, and liability of the OP Unitholders for
the AIMCO Operating Partnership's debts and obligations
is generally limited to the amount of their invest-
ment in the AIMCO Operating Partnership. However, the
limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner has the responsibility for the Unless otherwise provided for in the relevant
safekeeping and use of all funds and assets of your partnership agreement, Delaware law generally requires
partnership and must not employ or permit others to a general partner of a Delaware limited partnership to
employ such funds or assets in any manner except for adhere to fiduciary duty standards under which it owes
the exclusive benefit of your partnership. Your its limited partners the highest duties of good faith,
partnership's agreement of limited partnership provides fairness and loyalty and which generally prohibit such
that the general partner and its affiliates with whom general partner from taking any action or engaging in
they contract on behalf of your partnership must devote any transaction as to which it has a conflict of
such of their time to the business of your partnership interest. The AIMCO Operating Partnership Agreement
as they may, in their sole discretion, deem necessary expressly authorizes the general partner to enter into,
to conduct said business. The general partner and its on behalf of the AIMCO Operating Partnership, a right
affiliates may engage for their own account and for the of first opportunity arrangement and other conflict
account of others in any business ventures, including avoidance agreements with various affiliates of the
the purchase of real estate properties, the AIMCO Operating Partnership and the general partner, on
development, operation, management or syndication of such terms as the general partner, in its sole and
real estate properties, and your partnership shall have absolute discretion, believes are advisable. The AIMCO
no right to participate therein. However, the general Operating Partnership Agreement expressly limits the
partner must at all times act in the best interests of liability of the general partner by providing that the
your partnership and in no event contrary to the general partner, and its officers and directors will
fiduciary relationship that it bears at all times in not be liable or accountable in damages to the AIMCO
relation to your partnership and to each of the Operating Partnership, the limited partners or
partners with regard to your partnership's business assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders
partners owning a majority of the Operating Partnership Agreement, have voting rights only with
outstanding units may without the the holders of the Preferred OP respect to certain limited matters
concurrence of the general Units will have the same voting such as certain amendments and
partners, vote to amend your rights as holders of the Common OP termination of the AIMCO Operating
partnership's agreement of limited Units. See "Description of OP Partnership Agreement and certain
partnership, subject to certain Units" in the accompanying transactions such as the
limitations; dissolve and terminate Prospectus. So long as any institution of bankruptcy
your partnership; remove the Preferred OP Units are outstand- proceedings, an assignment for the
general partner; elect the general ing, in addition to any other vote benefit of creditors and certain
partner; and approve or disapprove or consent of partners required by transfers by the general partner of
the sale of all or substantially law or by the AIMCO Operating its interest in the AIMCO Operating
all of the assets of your Partnership Agree- Part-
</TABLE>
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<PAGE> 768
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
partnership. ment, the affirmative vote or nership or the admission of a
consent of holders of at least 50% successor general partner.
The general partner may cause the of the outstanding Preferred OP
dissolution of the your partnership Units will be necessary for Under the AIMCO Operating Partner-
by retiring unless, the remaining effecting any amendment of any of ship Agreement, the general partner
general partner elects to continue the provisions of the Partnership has the power to effect the
your partnership within 120 days or Unit Designation of the Preferred acquisition, sale, transfer,
if there is no remaining general OP Units that materially and exchange or other disposition of
partner, the limited partners adversely affects the rights or any assets of the AIMCO Operating
owning more than 50% of the then preferences of the holders of the Partnership (including, but not
outstanding units may elect new Preferred OP Units. The creation or limited to, the exercise or grant
general partner to continue your issuance of any class or series of of any conversion, option,
partnership. partnership units, including, privilege or subscription right or
without limitation, any partner- any other right available in
ship units that may have rights connection with any assets at any
senior or superior to the Preferred time held by the AIMCO Operating
OP Units, shall not be deemed to Partnership) or the merger,
materially adversely affect the consolidation, reorganization or
rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such
Operations (as defined in your provided, however, that at any time portion as the general partner may
partnership's agreement of limited and from time to time on or after in its sole and absolute discretion
partnership) are to be distributed the fifth anniversary of the issue determine, of Available Cash (as
from time to time but no less often date of the Preferred OP Units, the defined in the AIMCO Operating
than quarterly and not later than AIMCO Operating Partnership may Partnership Agreement) generated by
ninety days after the end of the adjust the annual distribution rate the AIMCO Operating Partnership
fiscal quarter. The distributions on the Preferred OP Units to the during such quarter to the general
payable to the partners are not lower of (i) % plus the annual partner, the special limited
fixed in amount and depend upon the interest rate then applicable to partner and the holders of Common
operating results and net sales or U.S. Treasury notes with a maturity OP Units on the record date
refinancing proceeds available from of five years, and (ii) the annual established by the general partner
the disposition of your dividend rate on the most recently with respect to such quarter, in
partnership's assets. Your partner- issued AIMCO non-convertible accordance with their respective
ship has made distributions in the preferred stock which ranks on a interests in the AIMCO Operating
past and is projected to make parity with its Class H Cumu- Partnership on such record date.
distributions in 1998. Holders of any other Pre-
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part-
substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the
such person if: (1) such transfer on any securities exchange. The transferability of the OP Units.
is in compliance with applicable Preferred OP Units are subject to Until the expiration of one year
Federal and state securities law, restrictions on transfer as set from the date on which an OP
(2) a written assignment has been forth in the AIMCO Operating Unitholder acquired OP Units,
duly executed by the assignor and Partnership Agreement. subject to certain exceptions, such
assignee, (3) the written approval OP Unitholder may not transfer all
of the managing general partner Pursuant to the AIMCO Operating or any portion of its OP Units to
which may be withheld in the sole Partnership Agreement, until the any transferee without the consent
and absolute discretion of the expiration of one year from the of the general partner, which
general partner has been granted date on which a holder of Preferred consent may be withheld in its sole
and (4) the assignor or the OP Units acquired Preferred OP and absolute discretion. After the
assignee pays a transfer fee. Units, subject to certain expiration of one year, such OP
exceptions, such holder of Unitholder has the right to
There are no redemption rights Preferred OP Units may not transfer transfer all or any portion of its
associated with your units. all or any portion of its Pre- OP Units to any person, subject to
ferred OP Units to any transferee the satisfaction of certain
without the consent of the general conditions specified in the AIMCO
partner, which consent may be Operating Partnership Agreement,
withheld in its sole and absolute including the general partner's
discretion. After the expiration of right of first refusal. See
one year, such holders of Preferred "Description of OP Units --
OP Units has the right to transfer Transfers and Withdrawals" in the
all or any portion of its Preferred accompanying Prospectus.
OP Units to any person, subject to
the satisfaction of
</TABLE>
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<PAGE> 770
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
certain conditions specified in the After the first anniversary of
AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
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<PAGE> 771
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner from your partnership but may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $30,621 in 1996, $32,886 in 1997 and $17,036 for the
first six months of 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the manager of your partnership's
property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-72
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YOUR PARTNERSHIP
GENERAL
La Colina Partners, Ltd. is a California limited partnership which raised
net proceeds of approximately $1,411,000 in 1982 through a private offering. The
promoter for the private offering of your partnership was Calmark Properties,
Inc. & Subs. Insignia acquired your partnership in 1992. AIMCO acquired Insignia
in October, 1998. There are currently a total of 37 limited partners of your
partnership and a total of 34 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the single apartment property
described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on January 29, 1982 for the purpose of owning
and operating a single apartment property located in Fort Collins, Colorado,
known as "Scotch Pines East." Your partnership's property consists of 102
apartment units. There are 53 one-bedroom apartments and 1 two-bedroom
apartment. The total rentable square footage of your partnership's property is
53,516 square feet. Your partnership's property had an average occupancy rate of
approximately 99.02% in 1996 and 99.02% in 1997. The average annual rent per
apartment unit is approximately $6,154.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since 1992, your partnership's property has been managed by an entity which
is now an affiliate of AIMCO. Pursuant to the management agreement between the
property manager and your partnership, the property manager operates your
partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $30,621, $32,886 and $17,036, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is not limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2031
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is not is
limited to the assets acquired with the initial equity raised through the sale
of units to the limited partners of your partnership or the assets initially
contributed to your partnership by the limited partners, as well as the debt
financing obtained by your partnership within the established borrowing
restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
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CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $2,786,929, payable to Lehman, which bears interest at a rate of
7.34%. The mortgage debt is due in December 2004. Your partnership also has a
second mortgage note outstanding of $2,786,929, on the same terms as the first
mortgage note. Your partnership's agreement of limited partnership also allows
the general partner of your partnership to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
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<PAGE> 774
Below is selected financial information for Calmark/Fort Collins, Ltd.
taken from the financial statements described above. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
CALMARK/ FORT COLLINS, LTD.
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 192,124 $ 61,311 $ 689,070 $ 58,002 $ 41,905 $ 32,707 $ 14,800
Land & Building.............. 2,977,068 2,892,992 2,926,536 2,866,903 2,816,178 2,793,061 2,764,348
Accumulated Depreciation..... (2,689,760) (2,548,381) (2,619,070) (2,477,691) (2,342,385) (2,210,715) (2,083,146)
Other Assets................. 104,452 106,972 131,871 120,717 125,176 137,046 160,413
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 583,884 $ 512,894 $ 1,128,407 $ 567,931 $ 640,874 $ 752,099 $ 856,415
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest................... $ 2,804,056 $ 1,892,499 $ 2,800,000 $ 1,890,607 $ 1,908,194 $ 1,926,141 $ 1,940,681
Other Liabilities............ 25,900 195,515 70,376 260,945 301,104 318,957 306,835
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... 2,829,956 2,088,014 2,870,376 2,151,552 2,209,298 2,245,098 2,247,516
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $(2,246,072) $(1,575,120) $(1,741,969) $(1,583,621) $(1,568,424) $(1,492,999) $(1,391,101)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CALMARK/ FORT COLLINS, LTD.
-----------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Rental Revenue.............................. $320,474 $312,886 $ 634,729 $590,562 $558,588 $ 506,904 $ 467,273
Other Income................................ 16,063 10,076 26,773 16,369 19,255 20,836 10,357
-------- -------- --------- -------- -------- --------- ---------
Total Revenue...................... 336,537 322,962 661,502 606,931 577,843 527,740 477,630
-------- -------- --------- -------- -------- --------- ---------
Operating Expenses.......................... 130,061 98,134 224,165 228,669 256,017 186,995 151,101
General & Administrative.................... 17,036 16,145 26,903 18,381 20,808 54,976 52,422
Depreciation................................ 70,690 70,690 141,379 135,306 131,670 127,569 123,009
Interest Expense............................ 107,305 109,181 216,682 212,921 221,270 226,397 229,230
Property Taxes.............................. 15,548 20,311 28,284 26,851 23,503 33,701 46,235
-------- -------- --------- -------- -------- --------- ---------
Total Expenses..................... 340,640 314,461 637,413 622,128 653,268 629,638 601,997
-------- -------- --------- -------- -------- --------- ---------
Net Income.................................. $ (4,103) $ 8,501 $ 24,089 $(15,197) $(75,425) $(101,898) $(124,367)
======== ======== ========= ======== ======== ========= =========
Loss on extinguishment of debt.............. (182,437)
Net Income.................................. $(158,348)
</TABLE>
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<PAGE> 775
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized a net loss of $4,103 for the six months ended
June 30, 1998, compared to net income of $8,501 for the six months ended June
30, 1997. The decrease in net income of $12,604, or 51.74% was primarily the
result of an increase in operating and interest expense offset by an increase in
rental revenues. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$336,537 for the six months ended June 30, 1998, compared to $322,962 for the
six months ended June 30, 1997, an increase of $13,575, or 4.20%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $130,061 for the
six months ended June 30, 1998, compared to $98,134 for the six months ended
June 30, 1997, an increase of $31,927 or 32.53%. The increase is primarily due
to increased personnel and interior building repair expenses. Management
expenses totaled $17,036 for the six months ended June 30, 1998, compared to
$16,145 for the six months ended June 30, 1997, an increase of $891.
General and Administrative Expenses
General and administrative expenses totaled $17,036 for the six months
ended June 30, 1998 compared to $16,145 for the six months ended June 30, 1997,
an increase of $891.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $107,305 for the six months ended June 30, 1998, compared to
$109,181 for the six months ended June 30, 1997, a decrease of $1,876, or 1.72%.
The decrease is due to the refinancing of the mortgage which resulted in a lower
interest rate.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized a net loss of $158,348 for the year ended
December 31, 1997, compared to $15,197 for the year ended December 31, 1996. The
decrease in net income of $143,151, or 941.97% was primarily the result of a
loss recognized on the refinancing of the mortgage in 1997. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$661,502 for the year ended December 31, 1997, compared to $606,931 for the year
ended December 31, 1996, an increase of $54,571, or 8.99%. The increase is due
primarily to an increase in rental rates during the year.
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<PAGE> 776
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $224,165 for the
year ended December 31, 1997, compared to $228,669 for the year ended December
31, 1996, a decrease of $4,504 or 1.97%. Management expenses totaled $32,886 for
the year ended December 31, 1997, compared to $30,621 for the year ended
December 31, 1996, an increase of $2,265, or 7.40%. The increase resulted from
an increase in rental revenues, as management fees are calculated based on a
percentage of revenues.
General and Administrative Expenses
General and administrative expenses totaled $26,903 for the year ended
December 31, 1997 compared to $18,381 for the year ended December 31, 1996, an
increase of $8,522 or 46.36%. The increase is primarily due to professional
expenses and asset management fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $216,682 for the year ended December 31, 1997, compared to
$212,921 for the year ended December 31, 1996, an increase of $3,761, or 1.77%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $(15,197) for the year ended
December 31, 1996, compared to $(75,425) for the year ended December 31, 1995.
The increase in net income of $60,228, or 79.85% was primarily the result of an
increase in rental revenues and a decrease in operating expenses during 1996.
These factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$606,931 for the year ended December 31, 1996, compared to $577,843 for the year
ended December 31, 1995, an increase of $29,088, or 5.03%. The increase is due
primarily to increases in the rental rates during 1996.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $228,669 for the
year ended December 31, 1996, compared to $256,017 for the year ended December
31, 1995, a decrease of $27,348 or 10.68%. The decrease is primarily due to
maintenance work at the property during 1995, which did not occur in 1996.
Management expenses totaled $30,621 for the year ended December 31, 1996,
compared to $28,854 for the year ended December 31, 1995, an increase of $1,767,
or 6.12%. The increase resulted from an increase in rental revenues, as
management fees are calculated based on a percentage of revenues.
General and Administrative Expenses
General and administrative expenses totaled $18,381 for the year ended
December 31, 1996 compared to $20,808 for the year ended December 31, 1995, a
decrease of $2,427 or 11.66%. This is primarily due to reimbursable general
partner fees.
S-77
<PAGE> 777
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $212,921 for the year ended December 31, 1996, compared to
$221,270 for the year ended December 31, 1995, a decrease of $8,349, or 3.77%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $192,124 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Your partnership's agreement of
limited partnership does not limit the liability of the general partners to your
Partners or the limited partners for any act performed in their capacity as
general partner. The general partner of your partnership is owned by AIMCO. See
"Conflicts of Interest".
Your partnership's agreement of limited partnership provides that the
general partners of your partnership and their affiliates are entitled to
indemnification from any expense, liability or loss, including attorneys' fees
incurred in connection with the defense of any action, based on any act or
omission by the general partners within the scope of the authority conferred by
your partnership's agreement of limited partnership, including all such
liabilities under Federal and state securities laws as permitted by law, except
for acts or omissions constituting fraud, bad faith, willful misconduct or gross
negligence. Such attorneys' fees may be paid as incurred. If such a claim for
indemnification (other than for expenses incurred in a successful defense) is
asserted against your partnership, your partnership will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy and will be governed by the final adjudication of
such issue. Your partnership is provide indemnification to the extent of its
assets. As part of its assumption of liabilities in the consolidation, AIMCO
will indemnify the general partner of your partnership and their affiliates for
periods prior to and following the consolidation to the extent of the indemnity
under the terms of your partnership's agreement of limited partnership and
applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 0
1995........................................................ 0
1996........................................................ 0
1997........................................................ 0
1998 (through June 30)...................................... 14,705.88
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been
S-78
<PAGE> 778
limited and sporadic. The general partner of your partnership monitors
transfers of the units (a) because the admission of the transferee as a
substitute limited partner in your partnership require the consent of the
general partner of your partnership under your partnership's agreement of
limited partnership, and (b) in order to track compliance with safe harbor
provisions to avoid treatment as a "publicly traded partnership" for tax
purposes. However, the general partner of your partnership does not monitor or
regularly receive or maintain information regarding the prices at which
secondary sale transactions in the units have been effectuated. The general
partner of your partnership estimates, based solely on the transfer records of
your partnership (or your partnership's transfer agent), that there have been no
units transferred in sale transactions (excluding transactions believed to be
between related parties, family members or the same beneficial owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses and distributions in its company as general partner
your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR MANAGEMENT FEES
- ---- ---------------
<S> <C>
1994......................................... $4,630
1995......................................... 4,671
1996......................................... 9,475
1997......................................... 8,091
1998 (through June 30).......................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... $28,854
1996........................................... 30,621
1997........................................... 32,886
1998 (through June 30)......................... 17,036
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-79
<PAGE> 779
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
S-80
<PAGE> 780
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1997
CONTENTS
<TABLE>
<CAPTION>
PAGE
Financial Statements of Calmark/Fort Collins, Ltd. ----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2
Condensed Statement of Operations for the six months ended
June 30, 1998 and 1997 (Unaudited)........................ F-3
Condensed Statement of Cash Flows for the six months ended
June 30, 1998 and 1997 (Unaudited)........................ F-4
Note A -- Basis of Presentation............................. F-5
Statement of Assets, Liabilities and Partners'
Deficit -- Federal Income Tax Basis as of December 31,
1997 (Unaudited).......................................... F-6
Statement of Revenues and Expenses -- Federal Income Tax
Basis for the year ended December 31, 1997 (Unaudited).... F-7
Statement of Changes in Partners' Deficit -- Federal Income
Tax Basis for the year ended December 31, 1997
(Unaudited)............................................... F-8
Statement of Cash Flows -- Federal Income Tax Basis for the
year ended December 31, 1997 (Unaudited).................. F-9
Notes to Financial Statements -- Federal Income Tax Basis
(Unaudited)............................................... F-10
Statement of Assets, Liabilities and Partners'
Deficit -- Federal Income Tax Basis as of December 31,
1996 (Unaudited).......................................... F-14
Statement of Revenues and Expenses -- Federal Income Tax
Basis for the year ended December 31, 1996 (Unaudited).... F-15
Statement of Changes in Partners' Deficit -- Federal Income
Tax Basis for the year ended December 31, 1996
(Unaudited)............................................... F-16
Statement of Cash Flows -- Federal Income Tax Basis for the
year ended December 31, 1996 (Unaudited).................. F-17
Notes to Financial Statements -- Federal Income Tax Basis
(Unaudited)............................................... F-18
Statement of Assets, Liabilities and Partners'
Deficit -- Federal Income Tax Basis as of December 31,
1995 (Unaudited).......................................... F-22
Statement of Revenues and Expenses -- Federal Income Tax
Basis for the year ended December 31, 1995 (Unaudited).... F-23
Statement of Changes in Partners' Deficit -- Federal Income
Tax Basis for the year ended December 31, 1995
(Unaudited)............................................... F-24
Statement of Cash Flows -- Federal Income Tax Basis for the
year ended December 31, 1995 (Unaudited).................. F-25
Notes to Financial Statements -- Federal Income Tax Basis
(Unaudited)............................................... F-26
</TABLE>
F-1
<PAGE> 781
CALMARK/FT. COLLINS
CONDENSED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 192,124
Receivables and Deposits.................................... 18,799
Other Assets................................................ 85,653
Investment Property:
Land...................................................... $ 190,405
Building and related personal property.................... 2,786,663
-----------
2,977,068
Less: Accumulated depreciation.............................. (2,689,760) 287,308
----------- -----------
Total Assets:..................................... $ 583,884
-----------
LIABILITIES AND PARTNERS' CAPITAL
Other Accrued Liabilities................................... $ 13,892
Property Taxes Payable...................................... 14,725
Tenant Security Deposits.................................... 14,410
Notes Payable............................................... 2,786,929
Partners' Capital........................................... (2,246,072)
-----------
Total Liabilities and Partners' Capital........... $ 583,884
===========
</TABLE>
F-2
<PAGE> 782
CALMARK/FT. COLLINS
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $320,474 $312,886
Other Income.............................................. 16,063 10,076
-------- --------
Total Revenues:................................... 336,537 322,962
Expenses:
Operating Expenses........................................ 130,061 98,134
General and Administrative Expenses....................... 17,036 16,145
Depreciation Expense...................................... 70,690 70,690
Interest Expense.......................................... 107,305 109,181
Property Tax Expense...................................... 15,548 20,311
-------- --------
Total Expenses:................................... 340,640 314,461
Net Income (Loss)........................................... $ (4,103) $ 8,501
======== ========
</TABLE>
F-3
<PAGE> 783
CALMARK/FT. COLLINS
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ (4,103) $ 8,501
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization............................. 75,433 88,920
Changes in accounts:
Receivables and deposits and other assets.............. 22,676 8,074
Accounts Payable and accrued expenses.................. (27,349) (51,410)
--------- ---------
Net cash provided by (used in) operating
activities...................................... 66,657 54,085
--------- ---------
Investing Activities
Property improvements and replacements.................... (50,532) (26,089)
--------- ---------
Net cash provided by (used in) investing
activities...................................... (50,532) (26,089)
--------- ---------
Financing Activities
Payments on mortgage...................................... (13,071) (24,687)
Partners' Distributions................................... (500,000) --
--------- ---------
Net cash provided by (used in) financing
activities...................................... (513,071) (24,687)
--------- ---------
Net increase (decrease) in cash and cash equivalents...... (496,946) 3,309
Cash and cash equivalents at beginning of year............ 689,070 58,002
--------- ---------
Cash and cash equivalents at end of period........ $ 192,124 $ 61,311
========= =========
</TABLE>
F-4
<PAGE> 784
CALMARK/FT. COLLINS LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Calmark/Ft. Collins as
of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been
prepared in accordance with the accounting basis for federal income tax
reporting. Accordingly, they do not include all the information and footnotes
required by the accounting basis for federal income tax reporting for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and all such adjustments
are of a recurring nature.
The financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997. It should be
understood that the accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
year.
F-5
<PAGE> 785
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS'
DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED)
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 689,070
Receivables and deposits.................................... 38,364
Loan costs, net of accumulated amortization of $791......... 65,613
Other assets (Note 3)....................................... 27,894
Apartment property, at cost (Note 4):
Land and improvements..................................... $ 190,405
Buildings and related personal property................... 2,736,131
2,926,536
Less accumulated depreciation............................. (2,619,070) 307,466
----------- -----------
$ 1,128,407
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 6,145
Accrued liabilities....................................... 45,556
Long-term debt (Note 4)................................... 2,800,000
Tenant security deposit liabilities....................... 18,675
-----------
2,870,376
Partners' deficit:
Limited Partners.......................................... $(1,711,754)
General Partners.......................................... (30,215) (1,741,969)
----------- -----------
$ 1,128,407
===========
</TABLE>
F-6
<PAGE> 786
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF REVENUES AND EXPENSES --
FEDERAL INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $ 634,729
Other income.............................................. 26,773
---------
661,502
Expenses:
Operating................................................. $224,165
General and administrative................................ 26,903
Interest.................................................. 216,682
Depreciation.............................................. 141,379
Property taxes............................................ 28,284
Loss on extinguishment of debt............................ 182,437 819,850
-------- ---------
Excess of expenses over revenues............................ $(158,348)
=========
</TABLE>
F-7
<PAGE> 787
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FEDERAL INCOME TAX BASIS (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' deficit at December 31, 1996.................. $(28,632) $(1,554,989) $(1,583,621)
Excess of expenses over revenues...................... (1,583) (156,765) (158,348)
-------- ----------- -----------
Partners' deficit at December 31, 1997.................. $(30,215) $(1,711,754) $(1,741,969)
======== =========== ===========
</TABLE>
F-8
<PAGE> 788
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS --
FEDERAL INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Operating activities
Excess of expenses over revenues.......................... $ (158,348)
Adjustments to reconcile excess of expenses over revenues
to net cash provided by operating activities:
Loss on extinguishment of debt......................... 182,437
Depreciation........................................... 141,379
Amortization of loan costs and discount................ 33,967
Changes in accounts:
Receivables and deposits............................. 12,015
Other assets......................................... (979)
Accounts payable..................................... (21,796)
Accrued liabilities.................................. 1,527
Tenant security deposit liabilities.................. (1,700)
-----------
Net cash provided by operating activities......... 188,502
Investing activities
Property improvements and replacements.................... (59,633)
Financing activities
Payments on long-term debt................................ (178,193)
Payoff of long-term debt.................................. (2,029,632)
Additional borrowings on long-term debt................... 2,800,000
Loan costs................................................ (66,404)
Debt extinguishment costs................................. (3,197)
-----------
Net cash provided by financing activities......... 522,574
-----------
Net increase in cash and cash equivalents......... 651,443
Cash and cash equivalents at December 31, 1996............ 37,627
-----------
Cash and cash equivalents at December 31, 1997............ $ 689,070
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest.................... $ 179,608
===========
</TABLE>
F-9
<PAGE> 789
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS --
FEDERAL INCOME TAX BASIS (UNAUDITED)
DECEMBER 31, 1997
1. ORGANIZATION
Description of Partnership
Calmark/Fort Collins, Ltd., a California limited partnership (the
"Partnership"), was formed in January 1982 to acquire and operate a 102-unit
apartment complex in Fort Collins, Colorado. This property was acquired from
Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General
Partner, Calmark/Fort Collins, Inc., a California corporation.
The Partnership will terminate on December 31, 2031 unless terminated
sooner by the retirement or dissolution of the General Partners or unless the
Partners elect to continue the Partnership.
The General Partners of the Partnership are Calmark/Fort Collins, Inc., a
California corporation (the Corporate General Partner) and Fort Collins Company,
Ltd., a California limited partnership (Associate General Partner). In January
1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc.,
purchased all of the outstanding stock of the Corporate General Partner and
assumed the role and obligations of the Managing General Partner of the
Partnership.
Allocations to Partners
In general, income and losses from operations and losses upon sale of the
property and/or dissolution of the Partnership are allocated 1% to the General
Partners and 99% to the Limited Partners.
Income from disposition or partial disposition of the Partnership's
property and income upon termination and liquidation of the Partnership will be
allocated as follows:
a. Ordinary income under Section 751(c) of the Internal Revenue Code
will be allocated between the Partners as a class in the same proportion as
such deductions were allocated to them.
b. To Partners with negative adjusted capital account balances (as
defined), after accounting for distributions described below, in proportion
to their negative adjusted capital account balances.
c. Any remaining income will be allocated so as to produce a 25:75
ratio between the aggregate positive adjusted capital account balances of
the General Partners and the aggregate positive adjusted capital account
balances of the Limited Partners after accounting for the distributions
described below.
Cash Distributions
Net cash from operations (as defined) is to be distributed not less than
quarterly and not later than ninety days after the end of each fiscal quarter of
the Partnership in the following order of priority:
a. To the General Partners an amount equal to the excess gross rental
income (as defined), not to exceed $66,500.
b. 1% to the General Partners and 99% to the Limited Partners as a
class until such time as the Limited Partners have received in the
aggregate an amount equal to an 8% per annum cumulative (but not
compounded) return on their adjusted investment interest (as defined).
c. The remainder is allocated 25% to the General Partners and 75% to
the Limited Partners as a class. In general, any proceeds remaining after
the sale of the properties and dissolution of the Partnership shall be
distributed to the Partners in accordance with their capital accounts after
payment of certain items specified in the Partnership Agreement.
F-10
<PAGE> 790
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS --
FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The Partnership's financial statements are prepared using the tax accrual
method of accounting as set forth in the Federal income tax code and
regulations. This method of accounting differs from generally accepted
accounting principles primarily in the timing of recognition of revenue and
certain expenses, recognition of certain costs of the Project, methods of
depreciation and useful lives of assets, and recognition and amortization of
deferred fees.
The Partnership's Federal income tax returns are subject to examination by
taxing authorities. Because the application of tax laws and regulations to many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date upon final
determinations by taxing authorities.
Apartment Property
The apartment property is stated at cost. Depreciation of the apartment
property has been provided using the accelerated cost recovery method (1) for
real property over 15 years and (2) for personal property over 5 years for
additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986,
for additions after December 31, 1986, the modified accelerated cost recovery
method is used for depreciation of (1) real property additions over 27 1/2 years
and (2) personal property additions over 7 years.
Replacement Reserve
A replacement reserve account was established with the mortgagee, and these
funds are to be used to make necessary repairs and replacements of existing
equipment and improvements. The Partnership may be required to deposit
additional amounts on a monthly basis if the mortgagee determines in its sole
discretion that conditions warrant the deposits. At December 31, 1997, the
balance in the reserve account was $6,063.
Syndication Costs
Syndication costs are stated at cost to the Partnership and are not
amortizable for Federal income tax purposes, but result in a capital loss upon
the dissolution of the Partnership.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity
when purchased of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease and such deposits are included in "Receivables and
deposits". Deposits are refunded when the tenant vacates the apartment if there
has been no damage to the unit.
F-11
<PAGE> 791
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS --
FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
Income Taxes
Under provisions of the Internal Revenue Code and applicable state revenue
and taxation codes, partnerships are generally not subject to income taxes. For
tax purposes, any income or loss realized is that of the individual partners,
not the Partnership.
Loan Costs
Loan costs are being amortized by the straight-line method over the term of
the related debt.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. OTHER ASSETS
Other assets consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Syndication costs........................................... $20,000
Replacement reserve......................................... 6,063
Other....................................................... 1,831
-------
$27,894
=======
</TABLE>
4. LONG-TERM DEBT
Long-term debt payable at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Mortgage note payable to Lehman Brothers Holdings, Inc.
secured by a first deed of trust on the property. This
note bears interest at 7.34% per annum. Principal and
interest payments of $19,272 are payable monthly, with a
balloon payment of $2,584,606 due on December 1, 2004..... $2,800,000
==========
</TABLE>
During 1997, the Partnership refinanced its long-term debt. The Partnership
recognized a loss on extinguishment of the old debt of $182,437 primarily due to
writing off unamortized debt discount and loan costs. In addition, the
Partnership incurred $66,404 in costs associated with the new debt. The new debt
contains prepayment penalties if repaid prior to maturity.
Scheduled principal payments of long-term debt subsequent to December 31,
are as follows:
<TABLE>
<S> <C>
1998.................................................. $ 26,630
1999.................................................. 28,652
2000.................................................. 30,827
2001.................................................. 33,167
2002.................................................. 35,685
Thereafter.............................................. 2,645,039
----------
$2,800,000
==========
</TABLE>
F-12
<PAGE> 792
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS --
FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
5. TRANSACTIONS WITH AFFILIATED PARTIES
Property management fees of $32,886 (included in operating expenses) and
reimbursements for general partner expenses of $8,091 (included in general and
administrative expenses) are included in the statement of revenues and
expenses -- Federal income tax basis and relate to services provided by
affiliates of the Partnership's Managing General Partner.
F-13
<PAGE> 793
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS'
DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED)
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
Cash:
Unrestricted.............................................. $ 37,627
Restricted -- tenant security deposits.................... 20,375 $ 58,002
-----------
Accounts receivable......................................... 475
Escrow deposits for taxes and insurance..................... 29,529
Loan costs, net of accumulated amortization of $43,513...... 63,798
Other assets (Note 3)....................................... 26,915
Apartment property, at cost (Note 4):
Land and improvements..................................... 190,405
Buildings and related personal property................... 2,676,498
-----------
2,866,903
Less accumulated depreciation............................. (2,477,691) 389,212
----------- -----------
$ 567,931
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 27,941
Accrued liabilities....................................... 44,029
Long-term debt (Note 4)................................... 2,059,207
Tenant security deposits.................................. 20,375
-----------
2,151,552
Partners' deficit:
Limited Partners.......................................... $(1,554,989)
General Partners.......................................... (28,632) (1,583,621)
----------- -----------
$ 567,931
===========
</TABLE>
F-14
<PAGE> 794
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF REVENUES AND EXPENSES --
FEDERAL INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $590,562
Other income.............................................. 16,369
--------
606,931
Expenses:
Interest.................................................. $212,921
Depreciation.............................................. 135,306
Amortization of loan costs................................ 10,752
Payroll................................................... 47,528
Utilities................................................. 24,419
Repairs and maintenance................................... 58,528
Property taxes............................................ 26,851
Management fees (Note 5).................................. 30,621
Insurance................................................. 9,052
Other..................................................... 66,150 622,128
-------- --------
Excess of expenses over revenues............................ $(15,197)
========
</TABLE>
F-15
<PAGE> 795
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FEDERAL INCOME TAX BASIS (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' deficit at December 31, 1995.................. $(28,480) $(1,539,944) $(1,568,424)
Excess of expenses over revenues...................... (152) (15,045) (15,197)
-------- ----------- -----------
Partners' deficit at December 31, 1996.................. $(28,632) $(1,554,989) $(1,583,621)
======== =========== ===========
</TABLE>
F-16
<PAGE> 796
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS --
FEDERAL INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Operating activities
Excess of expenses over revenues.......................... $ (15,197)
Adjustments to reconcile excess of expenses over revenues
to net cash provided by operating activities:
Depreciation........................................... 135,306
Amortization of loan costs and discount................ 35,871
Changes in accounts:
Restricted cash...................................... (350)
Accounts receivable.................................. (90)
Escrow deposits for taxes and insurance.............. (3,793)
Other assets......................................... (2,410)
Accounts payable..................................... 17,501
Accrued liabilities.................................. 15,693
Tenant security deposits............................. 888
---------
Net cash provided by operating activities......... 183,419
Investing activities
Property improvements and replacements.................... (50,725)
Financing activities
Payments on long-term debt................................ (116,947)
---------
Net increase in cash.............................. 15,747
Cash at December 31, 1995................................... 21,880
---------
Cash at December 31, 1996................................... $ 37,627
=========
Supplemental disclosure of cash flow information
Cash paid for interest expense............................ $ 174,570
=========
</TABLE>
F-17
<PAGE> 797
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS --FEDERAL
INCOME TAX BASIS (UNAUDITED)
DECEMBER 31, 1996
1. ORGANIZATION
Description of Partnership
Calmark/Fort Collins, Ltd., a California limited partnership (the
"Partnership"), was formed in January 1982 to acquire and operate a 102-unit
apartment complex in Fort Collins, Colorado. This property was acquired from
Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General
Partner, Calmark/Fort Collins, Inc., a California corporation.
The Partnership will terminate on December 31, 2031 unless terminated
sooner by the retirement or dissolution of the General Partners or unless the
Partners elect to continue the Partnership.
The General Partners of the Partnership are Calmark/Fort Collins, Inc., a
California corporation (the Corporate General Partner) and Fort Collins Company,
Ltd., a California limited partnership (Associate General Partner). In January
1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc.,
purchased all of the outstanding stock of the Corporate General Partner and
assumed the role and obligations of the Managing General Partner of the
Partnership.
Allocations to Partners
In general, income and losses from operations and losses upon sale of the
property and/or dissolution of the Partnership are allocated 1% to the General
Partners and 99% to the Limited Partners.
Income from disposition or partial disposition of the Partnership's
property and income upon termination and liquidation of the Partnership will be
allocated as follows:
a. Ordinary income under Section 751(c) of the Internal Revenue Code
will be allocated between the Partners as a class in the same proportion as
such deductions were allocated to them.
b. To Partners with negative adjusted capital account balances (as
defined), after accounting for distributions described below, in proportion
to their negative adjusted capital account balances.
c. Any remaining income will be allocated so as to produce a 25:75
ratio between the aggregate positive adjusted capital account balances of
the General Partners and the aggregate positive adjusted capital account
balances of the Limited Partners after accounting for the distributions
described below.
Cash Distributions
Net cash from operations (as defined) is to be distributed not less than
quarterly and not later than ninety days after the end of each fiscal quarter of
the Partnership in the following order of priority:
a. To the General Partners an amount equal to the excess gross rental
income (as defined), not to exceed $66,500.
b. 1% to the General Partners and 99% to the Limited Partners as a
class until such time as the Limited Partners have received in the
aggregate an amount equal to an 8% per annum cumulative (but not
compounded) return on their adjusted investment interest (as defined).
c. The remainder is allocated 25% to the General Partners and 75% to
the Limited Partners as a class. In general, any proceeds remaining after
the sale of the properties and dissolution of the Partnership shall be
distributed to the Partners in accordance with their capital accounts after
payment of certain items specified in the Partnership Agreement.
F-18
<PAGE> 798
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- FEDERAL
INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The Partnership's financial statements are prepared using the tax accrual
method of accounting as set forth in the Federal income tax code and
regulations. This method of accounting differs from generally accepted
accounting principles primarily in the timing of recognition of revenue and
certain expenses, recognition of certain costs of the Project, methods of
depreciation and useful lives of assets, and recognition and amortization of
deferred fees.
The Partnership's Federal income tax returns are subject to examination by
taxing authorities. Because the application of tax laws and regulations to many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date upon final
determinations by taxing authorities.
Apartment Property
The apartment property is stated at cost. Depreciation of the apartment
property has been provided using the accelerated cost recovery method (1) for
real property over 15 years and (2) for personal property over 5 years for
additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986,
for additions after December 31, 1986, the modified accelerated cost recovery
method is used for depreciation of (1) real property additions over 27 1/2 years
and (2) personal property additions over 7 years.
Replacement Reserve
A replacement reserve account was established with the mortgagee, and these
funds are to be used to make necessary repairs and replacements of existing
equipment and improvements. The Partnership may be required to deposit
additional amounts on a monthly basis if the mortgagee determines in its sole
discretion that conditions warrant the deposits. At December 31, 1996, the
balance in the reserve account was $5,739.
Syndication Costs
Syndication costs are stated at cost to the Partnership and are not
amortizable for Federal income tax purposes, but result in a capital loss upon
the dissolution of the Partnership.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Cash
The Partnership considers only unrestricted cash to be cash. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Restricted Cash
The Partnership requires security deposits from all lessees for the
duration of the lease. Deposits are refunded when the tenant vacates the
apartment if there has been no damage.
F-19
<PAGE> 799
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- FEDERAL
INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
Income Taxes
Under provisions of the Internal Revenue Code and applicable state revenue
and taxation codes, partnerships are generally not subject to income taxes. For
tax purposes, any income or loss realized is that of the individual partners,
not the Partnership.
Loan Costs
Loan costs are being amortized by the straight-line method over the term of
the related debt.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. OTHER ASSETS
Other assets consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Syndication costs........................................... $20,000
Replacement reserve......................................... 5,739
Other....................................................... 1,176
-------
$26,915
=======
</TABLE>
4. LONG-TERM DEBT
Long-term debt payable at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Mortgage note payable to Metmor Financial, Inc. secured by a
first deed of trust on the property. This note bears
interest at 8.25% per annum. Principal and interest
payments of $18,064 are payable monthly, with a balloon
payment of $1,663,990 due on January 1, 2003.............. $2,039,225
Promissory note payable to E.E. Mitchell and Co. This note
bears interest at 8.8% per annum. Interest and principal
payments based on cash flow (as defined in the note) are
made monthly. The unpaid principal and interest is due on
December 1, 1997.......................................... 168,600
----------
2,207,825
Less unamortized loan discount fee.......................... (148,618)
----------
$2,059,207
==========
</TABLE>
The Partnership exercised an interest rate buy-down option for the
refinanced mortgage note payable. This loan discount fee, amortized on a
straight-line basis over the life of the loan, is reflected as a reduction of
the mortgage note payable and increases the effective rate of the debt to
10.25%. The mortgage note payable is secured by pledge of the apartment property
and by pledge of revenues from the apartment property.
F-20
<PAGE> 800
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- FEDERAL
INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
Scheduled principal payments of long-term debt subsequent to December 31,
are as follows:
<TABLE>
<S> <C>
1997.................................................. $ 223,401
1998.................................................. 55,115
1999.................................................. 59,837
2000.................................................. 64,996
2001.................................................. 70,534
Thereafter............................................ 1,733,942
----------
$2,207,825
==========
</TABLE>
5. TRANSACTIONS WITH AFFILIATED PARTIES
Property management fees of $30,621 and reimbursements for general partner
expenses of $6,707 (included in other expenses) are included in the statement of
revenues and expenses -- Federal income tax basis and relate to services
provided by affiliates of the Partnership's Managing General Partner. At
December 31, 1996, the Partnership owed the General Partner $2,768 for general
partner expenses.
F-21
<PAGE> 801
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS'
DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED)
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
Cash:
Unrestricted.............................................. $ 21,880
Restricted -- tenant security deposits.................... 20,025 $ 41,905
-----------
Accounts receivable......................................... 385
Escrow deposits for taxes and insurance..................... 25,736
Loan costs, net of accumulated amortization of $32,761...... 74,550
Other assets (Note 3)....................................... 24,505
Apartment property, at cost (Note 4):
Land and improvements..................................... 190,405
Buildings and related personal property................... 2,625,773
-----------
2,816,178
Less accumulated depreciation............................. (2,342,385) 473,793
----------- -----------
$ 640,874
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 10,440
Accrued liabilities....................................... 28,336
Long-term debt (Note 4)................................... 2,151,035
Tenant security deposits.................................. 19,487
-----------
2,209,298
Partners' deficit:
Limited Partners.......................................... $(1,539,944)
General Partners.......................................... (28,480) (1,568,424)
----------- -----------
$ 640,874
===========
</TABLE>
F-22
<PAGE> 802
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF REVENUES AND EXPENSES --
FEDERAL INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $558,588
Other income.............................................. 19,255
--------
577,843
Expenses:
Interest.................................................. $221,270
Depreciation.............................................. 131,670
Amortization of loan costs................................ 10,752
Payroll................................................... 49,462
Utilities................................................. 24,446
Repairs and maintenance................................... 90,192
Property taxes............................................ 23,503
Management fees (Note 5).................................. 28,854
Insurance................................................. 9,827
Other..................................................... 63,292 653,268
-------- --------
Excess of expenses over revenues............................ $(75,425)
========
</TABLE>
F-23
<PAGE> 803
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT --
FEDERAL INCOME TAX BASIS (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' deficit at December 31, 1994.................. $(27,726) $(1,465,273) $(1,492,999)
Excess of expenses over revenues...................... (754) (74,671) (75,425)
-------- ----------- -----------
Partners' deficit at December 31, 1995.................. $(28,480) $(1,539,944) $(1,568,424)
======== =========== ===========
</TABLE>
F-24
<PAGE> 804
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS --
FEDERAL INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Operating activities
Excess of expenses over revenues.......................... $(75,425)
Adjustments to reconcile excess of expenses over revenues
to net cash provided by operating activities:
Depreciation........................................... 131,670
Amortization of loan costs and discount................ 35,871
Changes in accounts:
Restricted cash...................................... (2,650)
Accounts receivable.................................. (141)
Escrow deposits for taxes and insurance.............. 1,258
Accounts payable..................................... 4,901
Accrued liabilities.................................. 10,899
Tenant security deposits............................. 61
--------
Net cash provided by operating activities......... 106,444
Investing activities
Property improvements and replacements.................... (23,117)
Financing activities
Payments on long-term debt................................ (76,779)
--------
Net increase in cash.............................. 6,548
Cash at December 31, 1994................................... 15,332
--------
Cash at December 31, 1995................................... $ 21,880
========
Supplemental disclosure of cash flow information
Cash paid for interest expense............................ $196,300
========
</TABLE>
F-25
<PAGE> 805
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS --
FEDERAL INCOME TAX BASIS (UNAUDITED)
DECEMBER 31, 1995
1. ORGANIZATION
Description of Partnership
Calmark/Fort Collins, Ltd., a California limited partnership (the
"Partnership"), was formed in January 1982 to acquire and operate a 102-unit
apartment complex in Fort Collins, Colorado. This property was acquired from
Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General
Partner, Calmark/Fort Collins, Inc., a California corporation.
The Partnership will terminate on December 31, 2031 unless terminated
sooner by the retirement or dissolution of the General Partners or unless the
Partners elect to continue the Partnership.
The General Partners of the Partnership are Calmark/Fort Collins, Inc., a
California corporation (the Corporate General Partner) and Fort Collins Company,
Ltd., a California limited partnership (Associate General Partner). In January
1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc.,
purchased all of the outstanding stock of the Corporate General Partner and
assumed the role and obligations of the Managing General Partner of the
Partnership.
Allocations to Partners
In general, income and losses from operations and losses upon sale of the
property and/or dissolution of the Partnership are allocated 1% to the General
Partners and 99% to the Limited Partners.
Income from disposition or partial disposition of the Partnership's
property and income upon termination and liquidation of the Partnership will be
allocated as follows:
a. Ordinary income under Section 751(c) of the Internal Revenue Code
will be allocated between the Partners as a class in the same proportion as
such deductions were allocated to them.
b. To Partners with negative adjusted capital account balances (as
defined), after accounting for distributions described below, in proportion
to their negative adjusted capital account balances.
c. Any remaining income will be allocated so as to produce a 25:75
ratio between the aggregate positive adjusted capital account balances of
the General Partners and the aggregate positive adjusted capital account
balances of the Limited Partners after accounting for the distributions
described below.
Cash Distributions
Net cash from operations (as defined) is to be distributed not less than
quarterly and not later than ninety days after the end of each fiscal quarter of
the Partnership in the following order of priority:
a. To the General Partners an amount equal to the excess gross rental
income (as defined), not to exceed $66,500.
b. 1% to the General Partners and 99% to the Limited Partners as a
class until such time as the Limited Partners have received in the
aggregate an amount equal to an 8% per annum cumulative (but not
compounded) return on their adjusted investment interest (as defined).
c. The remainder is allocated 25% to the General Partners and 75% to
the Limited Partners as a class. In general, any proceeds remaining after
the sale of the properties and dissolution of the Partnership shall be
distributed to the Partners in accordance with their capital accounts after
payment of certain items specified in the Partnership Agreement.
F-26
<PAGE> 806
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- FEDERAL
INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The Partnership's financial statements are prepared using the tax accrual
method of accounting as set forth in the Federal income tax code and
regulations. This method of accounting differs from generally accepted
accounting principles primarily in the timing of recognition of revenue and
certain expenses, recognition of certain costs of the Project, methods of
depreciation and useful lives of assets, and recognition and amortization of
deferred fees.
The Partnership's Federal income tax returns are subject to examination by
taxing authorities. Because the application of tax laws and regulations to many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date upon final
determinations by taxing authorities.
Apartment Property
The apartment property is stated at cost. Depreciation of the apartment
property has been provided using the accelerated cost recovery method (1) for
real property over 15 years and (2) for personal property over 5 years for
additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986,
for additions after December 31, 1986, the modified accelerated cost recovery
method is used for depreciation of (1) real property additions over 27 1/2 years
and (2) personal property additions over 7 years.
Replacement Reserve
A replacement reserve account was established with the mortgagee, and these
funds are to be used to make necessary repairs and replacements of existing
equipment and improvements. The Partnership may be required to deposit
additional amounts on a monthly basis if the mortgagee determines in its sole
discretion that conditions warrant the deposits. At December 31, 1995, the
balance in the reserve account was $4,505.
Syndication Costs
Syndication costs are stated at cost to the Partnership and are not
amortizable for Federal income tax purposes, but result in a capital loss upon
the dissolution of the Partnership.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Cash
The Partnership considers only unrestricted cash to be cash. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Restricted Cash
The Partnership requires security deposits from all lessees for the
duration of the lease. Deposits are refunded when the tenant vacates the
apartment if there has been no damage.
F-27
<PAGE> 807
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- FEDERAL
INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
Income Taxes
Under provisions of the Internal Revenue Code and applicable state revenue
and taxation codes, partnerships are generally not subject to income taxes. For
tax purposes, any income or loss realized is that of the individual partners,
not the Partnership.
Loan Costs
Loan costs are being amortized by the straight-line method over the term of
the related debt.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. OTHER ASSETS
Other assets consist of the following at December 31, 1995:
<TABLE>
<S> <C>
Syndication costs........................................... $20,000
Replacement reserve......................................... 4,505
-------
$24,505
=======
</TABLE>
See Accountant's Compilation Report
4. LONG-TERM DEBT
Long-term debt payable at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Mortgage note payable to Metmor Financial, Inc. secured by a
first deed of trust on the property. This note bears
interest at 8.25% per annum. Principal and interest
payments of $18,064 are payable monthly, with a balloon
payment of $1,663,990 due on January 1, 2003.............. $2,081,931
Promissory note payable to E.E. Mitchell and Co. This note
bears interest at 8.8% per annum. Interest and principal
payments based on cash flow (as defined in the note) are
made monthly. The unpaid principal and interest is due on
December 1, 1997.......................................... 242,841
----------
2,324,772
Less unamortized loan discount fee.......................... (173,737)
----------
$2,151,035
==========
</TABLE>
The Partnership exercised an interest rate buy-down option for the
refinanced mortgage note payable. This loan discount fee, amortized on a
straight-line basis over the life of the loan, is reflected as a reduction of
the mortgage note payable and increases the effective rate of the debt to
10.25%. The mortgage note payable is secured by pledge of the apartment property
and by pledge of revenues from the apartment property.
F-28
<PAGE> 808
CALMARK/FORT COLLINS, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- FEDERAL
INCOME TAX BASIS (UNAUDITED) -- (CONTINUED)
Scheduled principal payments of long-term debt subsequent to December 31,
are as follows:
<TABLE>
<S> <C>
1996.................................................... $ 46,758
1997.................................................... 293,605
1998.................................................... 55,115
1999.................................................... 59,837
2000.................................................... 64,966
Thereafter.............................................. 1,804,491
----------
$2,324,772
==========
</TABLE>
See Accountants' Compilation Report.
5. TRANSACTIONS WITH AFFILIATED PARTIES
Property management fees of $28,854 and reimbursements for general partner
expenses of $4,671 (included in other expenses) are included in the statement of
revenues and expenses -- Federal income tax basis and relate to services
provided by affiliates of the Partnership's Managing General Partner.
F-29
<PAGE> 809
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 810
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 811
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 812
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
CALMARK HERITAGE PARK II LTD.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a small number of apartment properties to
holding an interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 813
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-16
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Calmark
Heritage Park II Ltd....................... S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
THE OFFER...................................... S-33
Terms of the Offer; Expiration Date.......... S-33
Acceptance for Payment and Payment for
Units...................................... S-33
Procedure for Tendering Units................ S-34
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-37
Proration.................................... S-37
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-39
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-42
Accounting Treatment......................... S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-43
Allocation................................... S-44
Liquidation Preference....................... S-44
Redemption................................... S-45
Voting Rights................................ S-45
Restrictions on Transfer..................... S-45
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-48
CERTAIN FEDERAL INCOME TAX MATTERS............. S-51
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-51
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-51
Tax Consequences of Exchanging Units Solely
for Cash................................... S-52
Adjusted Tax Basis........................... S-52
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-53
Passive Activity Losses...................... S-53
Foreign Offerees............................. S-54
Certain Tax Consequences to Non-Tendering and
Partially-Tendering Unitholders............ S-54
VALUATION OF UNITS............................. S-55
FAIRNESS OF THE OFFER.......................... S-56
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-56
Fairness to Unitholders who Tender their
Units...................................... S-57
Fairness to Unitholders who do not Tender
their Units................................ S-58
Comparison of Consideration to Alternative
Consideration.............................. S-58
Allocation of Consideration.................. S-59
STANGER ANALYSIS............................... S-59
Experience of Stanger........................ S-60
Summary of Materials Considered.............. S-60
Summary of Reviews........................... S-60
Conclusions.................................. S-61
Assumptions, Limitations and
Qualifications............................. S-61
Compensation and Material Relationships...... S-62
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-63
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68
CONFLICTS OF INTEREST.......................... S-72
Conflicts of Interest with Respect to the
Offer...................................... S-72
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-72
Competition Among Properties................. S-72
Features Discouraging Potential Takeovers.... S-72
Future Exchange Offers....................... S-72
</TABLE>
i
<PAGE> 814
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUR PARTNERSHIP............................... S-73
General...................................... S-73
Your Partnership and its Property............ S-73
Property Management.......................... S-73
Investment Objectives and Policies; Sale or
Financing of Investments................... S-73
Capital Replacement.......................... S-74
Borrowing Policies........................... S-74
Competition.................................. S-74
Legal Proceedings............................ S-74
Selected Financial Information............... S-74
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-76
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-78
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-78
Beneficial Ownership of Interests in Your
Partnership................................ S-79
Compensation Paid to the General Partner and
its Affiliates............................. S-79
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-80
LEGAL MATTERS.................................. S-80
EXPERTS........................................ S-80
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 815
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Calmark Heritage Park II Ltd. For each unit that you tender, you may choose
to receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 816
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. Your partnership has not paid any distributions
on your units since the inception of your partnership. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 817
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership has never made a distribution. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred
OP Units before any distributions are paid to holders of Tax-Deferral
Common OP Units. We pay quarterly distributions on the Tax-Deferral Common
OP Units based on our funds from operations for that quarter. For the six
months ended June 30, 1998, we paid distributions of $1.125 on each of the
Tax-Deferral Common OP Units (equivalent to $2.25 on an annual basis).
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a small number of apartment
properties to holding an interest in an operating business that owns and
manages a large portfolio of properties, with risks that do not exist for
your partnership. You should review the risk factors in this Prospectus
Supplement and in the accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
S-3
<PAGE> 818
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of
units without the consent of the general partner. Such consent may be
withheld by the general partner in its sole discretion. The general partner
may withhold its consent if such transfer would result in the termination
of your partnership for tax purposes which will occur if 50% or more of the
total interests in your partnership are transferred within a 12-month
period. If we acquire a significant percentage of the interest in your
partnership, the general partner may not consent to a transfer for a
12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership. In addition, there is a sale or exchange of 50% or more of the
total interest in capital and profits of your partnership within any
12-month period, including sales or exchanges resulting from the offer,
your partnership will terminate for Federal income tax purposes. Any such
termination may, among other things, subject the assets of your partnership
to longer depreciable lives than those currently applicable to the assets
of your partnership. This would generally decrease the annual average
depreciation deductions allocable to you if you do not tender all of your
units (thereby increasing the taxable income allocable to your units each
year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF
YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX
SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
OFFER.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your
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partnership using the direct capitalization method. This method involves
applying a capitalization rate to your partnership's annual net operating
income. We determined an appropriate capitalization rate using our best
judgment, but our valuation is just an estimate. Although the direct
capitalization method is a widely-accepted way of valuing real estate,
there are a number of other methods available to value real estate, each of
which may result in different valuations of the property. The proceeds that
you would receive if you sold your units to someone else or if your
partnership were actually liquidated might be higher or lower than our
offer consideration. An actual liquidation may also result in your paying
taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
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Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us. Although your
partnership did not make any distributions in 1998, it might make distributions
in the future.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
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<PAGE> 823
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a small
number of apartment properties to an interest in a partnership that invests in
and manages a large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if 50% or more of the total interests in your
partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
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<PAGE> 824
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
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<PAGE> 825
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain
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<PAGE> 826
pension trusts, registered investment companies and Mr. Considine). Our charter
also prohibits anyone from buying shares if the purchase would result in us
losing our REIT status. If you or anyone else acquires shares in excess of the
ownership limit or in violation of the ownership requirements of the Internal
Revenue Code for REITs, the transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent the
limited partners holding of at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
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distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership has required funding from its partners. Continuation of its
operations is dependent on additional funding from partners or from other
sources. Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If
your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. In addition, continuation of your partnership without the offer
would deny you and your partners the benefits that your general partner
expects to result from the offer. For example, a partner of your
partnership would have no opportunity for liquidity unless he were to sell
his units in a private transaction. Any such sale would likely be at a very
substantial discount from the partner's pro rata share of the fair market
value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. Your partnership has not paid any distributions on your units
since the inception of your partnership. However, one class of
outstanding Partnership Preferred Units has prior distribution rights and
the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Your partnership has not paid
any distributions on your units since the inception of your partnership.
S-13
<PAGE> 828
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
S-14
<PAGE> 829
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
S-15
<PAGE> 830
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS", "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary: Required capital expenditures and
deferred maintenance......................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
S-16
<PAGE> 831
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the
S-17
<PAGE> 832
fairness opinion. Based on its analysis, and subject to the assumptions,
limitations and qualifications cited in its opinion, Stanger concluded that our
offer consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner but may receive reimbursement for expenses
generated in that capacity from your partnership. The property manager received
management fees of $333,000 in 1996, $269,000 in 1997 and $135,829 for the first
six months of 1998. We have no current intention of changing the fee structure
for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
S-18
<PAGE> 833
YOUR PARTNERSHIP
Your Partnership and its Property. Calmark Heritage Park II Ltd. is a
California limited partnership which was formed on November 10, 1986 for the
purpose of owning and operating a small number of apartment properties located
in Escondido, California, Livermore, California, Anaheim, California and Chino,
California, known as "Heritage Park Escondido Apartments," "Heritage Park
Livermore Apartments," "Heritage Village Anaheim Apartments" and "Villa Serena
Apartments". In 1986, it completed a private placement of units that raised net
proceeds of approximately $18,650,000. Heritage Park Escondido Apartments
consists of 196 apartment units, Heritage Park Livermore Apartments consists of
167 apartment units, Heritage Village Anaheim Apartments consists of 196
apartment units and Villa Serena Apartments consists of 186 apartment units.
Your partnership has no employees.
Property Management. Since 1992, your partnership's property has been
managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on March 9, 2011, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage notes outstanding on Heritage Park Escondido Apartments of
$6,150,000, Heritage Park Livermore Apartments of $6,870,000 and Heritage
Village Anaheim Apartments of $7,685,000 payable to Wells Fargo and First Trust
of NY, which bear interest at variable rates and are due from 2007 to 2022.
There is also a mortgage note on Villa Serena Apartments, the balance of which
is $4,980,103, as of June 30, 1998. The note is payable to GMAC, bears interest
at 6.25% and is due November 2007. Your partnership's agreement of limited
partnership also allows your general partner to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 834
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 835
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
----------------- -----------------
1998 1997 1997 1996
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income........................... $38,524 $11,464 $32,697 $15,673
Gain on disposition of property...... (2,526) -- (2,720) (44)
Extraordinary item................... -- 269 269 --
Real estate depreciation, net of
minority interests................. 32,423 13,250 33,751 19,056
Amortization of goodwill............. 4,727 474 948 500
Equity in earnings of unconsolidated
subsidiaries:
Real estate depreciation........... -- 1,263 3,584 --
Amortization of management
contracts........................ 3,088 150 1,587 --
Deferred taxes..................... 4,291 874 4,894 --
Equity in earnings of other
partnerships:
Real estate depreciation........... 9,131 697 6,280 --
Preferred stock dividends.......... (6,001) -- (135) --
------- ------- ------- -------
Funds from operations................ $83,657 $28,441 $81,155 $35,185
======= ======= ======= =======
<CAPTION>
FOR THE
FOR THE YEAR ENDED
DECEMBER 31, UARY 10,
------- -----------
1995 1994
------- -----------
<S> <C> <C>
Net income........................... $14,988 $ 7,702
Gain on disposition of property...... -- --
Extraordinary item................... -- --
Real estate depreciation, net of
minority interests................. 15,038 4,727
Amortization of goodwill............. 428 76
Equity in earnings of unconsolidated
subsidiaries:
Real estate depreciation........... -- --
Amortization of management
contracts........................ -- --
Deferred taxes..................... -- --
Equity in earnings of other
partnerships:
Real estate depreciation........... -- --
Preferred stock dividends.......... (5,169) (3,114)
------- -------
Funds from operations................ $25,285 $ 9,391
======= =======
</TABLE>
S-21
<PAGE> 836
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 837
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 838
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 839
SUMMARY FINANCIAL INFORMATION OF CALMARK HERITAGE PARK II LTD.
The summary financial information of Calmark Heritage Park II Ltd. for the
six months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Calmark Heritage Park II Ltd. for the years ended December 31,
1997, 1996 and 1995 is based on audited financial statements. This information
should be read in conjunction with such financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Your Partnership" included herein. See "Index to
Financial Statements."
CALMARK HERITAGE PARK II LTD.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............... $ 2,560,636 $ 2,561,658 $ 5,160,000 $ 6,142,000 $ 6,272,954 $ 6,078,744 $ 6,067,789
Net Income/(Loss)............ (145,729) 92,623 498,000 (761,000) (928,632) (2,246,219) (691,506)
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation... 20,230,757 21,027,568 20,595,000 25,834,000 28,379,003 29,324,297 32,114,434
Total Assets................. $23,288,334 $25,994,789 $25,266,000 $29,618,000 $31,797,841 $32,646,694 $35,468,984
Mortgage Notes Payable,
including Accrued
Interest................... 29,798,625 31,673,640 31,540,000 36,865,000 39,312,783 39,142,350 39,766,148
Partners'
Capital/(Deficit).......... $(6,711,900) $(5,974,377) $(6,565,000) $(7,599,000) $(7,842,344) $(6,913,712) $(4,667,493)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 $0 $0
</TABLE>
S-25
<PAGE> 840
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 841
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a small number of apartment
properties. In contrast, the AIMCO Operating Partnership is in the business of
S-27
<PAGE> 842
acquiring, marketing, managing and operating a large portfolio of apartment
properties. While diversification of assets may reduce certain risks of
investment attributable to a single property or entity, there can be no
assurance as to the value or performance of our securities or our portfolio of
properties as compared to the value of your units or your partnership. Proceeds
of future asset sales or refinancings by the AIMCO Operating Partnership
generally will be reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or Common OP Units may be
redeemed for shares of Class I Preferred Stock or Class A Common Stock.
Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common
Stock at the time at which OP Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions, with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25. The partnership has never made a
distribution to its limited partners. Therefore, distributions with respect to
the Preferred OP Units and Common OP Units that we are offering are expected to
be , immediately following our offer, than the distribution with
respect to your units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your
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partnership. Any such hypothetical distribution of cash would be treated as a
nontaxable return of capital to the extent of your adjusted tax basis in your
units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. If there is a sale or exchange of 50% or more of the total interest in
capital and profits of your partnership within any 12-month period, including
sales or exchanges resulting from the offer, your partnership will terminate for
Federal income tax purposes. Any such termination may, among other things,
subject the assets of your partnership to longer depreciable lives than those
currently applicable to the assets of your partnership. This would generally
decrease the annual average depreciation deductions allocable to you if you do
not tender all of your units (thereby increasing the taxable income allocable to
your units each year), but would have no effect on the total depreciation
deductions available over the useful lives of the assets of your partnership.
Any such termination may also change (and possibly shorten) your holding period
with respect to your units that you choose to retain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if 50% or more of the total interests in your
partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own limited partnership interests in your partnership.
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Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your Partnership has required funding from its partners. Continuation of
its operations is dependent on additional funding from partners or from other
sources. Your
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partnership faces maturity or balloon payment dates on its mortgage loans and
must either obtain refinancing or sell its property. If your partnership were to
continue operating as presently structured, your partnership could be forced to
borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. Your Partnership
has not paid any distributions on your units since the inception of your
partnership. However, one class of outstanding Partnership Preferred
Units has prior distribution rights and the Tax-Deferral % Preferred OP
Units rank equal to six other outstanding classes of Partnership
Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future. Your Partnership
has not paid any distributions on your units since the inception of your
partnership.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the
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opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
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EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of considerations being offered, or increasing or decreasing the
percentage of outstanding units being sought). Notice of any such extension,
termination or amendment will promptly be disseminated in a manner reasonably
designed to inform unitholders of such change. In the case of an extension of
the offer, the extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., Denver, Colorado
time, on the next business day after the scheduled expiration date of the offer,
in accordance with Rule 14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
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(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments
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to your partnership's agreement of limited partnership. See "Comparison of
Your Units and AIMCO OP Units -- Voting Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998, (iii) any extraordinary or material
adverse change in the financial, real estate or money markets or major
equity security indices in the United States such that there shall have
occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in
the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any or material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending institutions, or (viii) in the case of any of the foregoing
existing at the time of the commencement of the offer, in the sole judgment
of the AIMCO Operating Partnership, a material acceleration or worsening
thereof; or
(c) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental agency,
or by any other person, before any governmental authority, court or
regulatory or administrative agency, authority or tribunal, which (i)
challenges or seeks to challenge the acquisition by the AIMCO Operating
Partnership of the units, restrains, prohibits or delays the making or
consummation of the offer, prohibits the performance of any of the
contracts or other arrangements entered into by the AIMCO Operating
Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to
obtain any material amount of damages as a result of the transactions
contemplated by the offer, (ii) seeks to
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make the purchase of, or payment for, some or all of the units pursuant to
the offer illegal or results in a delay in the ability of the AIMCO
Operating Partnership to accept for payment or pay for some or all of the
units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO
or any of its affiliates of the entity serving as the general partner of
your partnership or to remove such entity as the general partner of your
partnership, or seeks to impose any material limitation on the ability of
the AIMCO Operating Partnership or any of its affiliates to conduct your
partnership's business or own such assets, (iv) seeks to impose material
limitations on the ability of the AIMCO Operating Partnership or any of its
affiliates to acquire or hold or to exercise full rights of ownership of
the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
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(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to your partnership's business, or that certain
parts of your partnership's business might not have to be disposed of or other
substantial conditions complied with in order to obtain such approval or action,
any of which could cause the AIMCO Operating Partnership to elect to terminate
the offer without purchasing units hereunder. The
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AIMCO Operating Partnership's obligation to purchase and pay for units is
subject to certain conditions, including conditions related to the legal matters
discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such
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interest (the Common OP Units and such other interests are collectively
referred to herein as "Junior Units"); (ii) on a parity with the Class B
Partnership Preferred Units, the Class C Partnership Preferred Units, the Class
D Partnership Preferred Units, the Class G Partnership Preferred Units, the
Class H Partnership Preferred Units, and with any other interest in the AIMCO
Operating Partnership if the holders of such interest and the Preferred OP Units
shall be entitled to the receipt of distributions and amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective amounts
of accumulated, accrued and unpaid distributions or stated preferences, without
preference or priority of one over the other ("Parity Units"); and (iii) junior
to the Class F Partnership Preferred Units and any other interest in the AIMCO
Operating Partnership if the holders of such interest shall be entitled to the
receipt of distributions or amounts distributable upon liquidation, dissolution
or winding up in preference or priority to the holders of the Preferred OP Units
("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from
time to time by the AIMCO Operating Partnership without any approval or consent
by holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for
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payment by the AIMCO Operating Partnership with respect to any Parity
Units. Unless full cumulative distributions (including all accumulated, accrued
and unpaid distributions) on the Preferred OP Units have been declared and paid,
or declared and set apart for payment, for all past distribution periods, no
distributions (other than distributions or distributions paid in Junior Units or
options, warrants or rights to subscribe for or purchase Junior Units) may be
declared or paid or set apart for payment by the AIMCO Operating Partnership and
no other distribution of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating Partnership with respect to any
Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise
acquired (except for a redemption, purchase or other acquisition of Common OP
Units made for purposes of an employee incentive or benefit plan of AIMCO, the
AIMCO Operating Partnership or any subsidiary) for any consideration (or any
monies be paid to or made available for a sinking fund for the redemption of any
such Junior Units), directly or indirectly, by the AIMCO Operating Partnership
(except by conversion into or exchange for Junior Units, or options, warrants or
rights to subscribe for or purchase Junior Units), nor shall any other cash or
other property be paid or distributed to or for the benefit of holders of Junior
Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO
Operating Partnership shall not be prohibited from (i) declaring or paying or
setting apart for payment any distribution on any Parity Units or (ii)
redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if
such declaration, payment, redemption, purchase or other acquisition is
necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations shall have been made in full
to the holders of Preferred OP Units and any Parity Units to enable them to
receive their Liquidation Preference, any Junior Units shall be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Preferred OP Units and any Parity Units shall not be entitled to share
therein.
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REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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<PAGE> 860
DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 861
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 862
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 863
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 864
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 865
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 866
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 867
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING UNITHOLDERS
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). It is possible that the AIMCO Operating Partnership's
acquisition of units pursuant to the offer could result in a Termination of your
partnership. If a purchase of units results in a Termination, the following
Federal income tax events will be deemed to occur with respect to such
Termination: the terminated Partnership (the "Old Partnership") will be deemed
to have contributed all of its assets (subject to its liabilities) (the
"Hypothetical Contribution") to a new partnership (the "New Partnership") in
exchange for an interest in the New Partnership and, immediately thereafter, the
Old Partnership will be deemed to have distributed interests in the New
Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership
and unitholders who do not tender all of their units (a "Remaining Unitholders")
in proportion to their respective interests in the Old Partnership in
liquidation of the Old Partnership.
A Remaining Unitholder will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Unitholders in the Old Partnership will carry over
intact into the New Partnership. Any Termination may change (and possibly
shorten) a Remaining Unitholder's holding period with respect to its units in
your partnership for Federal income tax purposes.
The New Partnership's adjusted tax basis in its assets will carry over from
the Old Partnership's basis in such assets immediately before the Termination.
Any Termination may also subject the assets of the New Partnership to
depreciable lives in excess of those currently applicable to the Old
Partnership. This would generally decrease the annual average depreciation
deductions allocable to the Remaining Unitholders following consummation of the
offer (thereby increasing the taxable income allocable to their retained units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership.
Section 704(c) of the Code will apply to future allocation of income, gain,
loss and deductions with respect to any New Partnership assets among the AIMCO
Operating Partnership and the Remaining Unitholders following the consummation
of the offer only to the extent that such assets were Section 704(c) property in
the hands of the Old Partnership immediately prior to the Hypothetical
Contribution. Moreover, subject to the Code's anti-abuse regulations, the New
Partnership will not be required to apply the same Section 704(c) allocation
method applied by the Old Partnership. The Hypothetical Contribution will not
trigger a new five-year holding period for purposes of measuring
post-contribution appreciation of assets for the unitholder who contributed such
assets.
Elections as to certain tax matters previously made by the Old Partnership
prior to Termination will not be applicable to the New Partnership unless the
New Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all unitholders. In the case of a Remaining Unitholder reporting on a
tax year other than a calendar year, the closing of your partnership's taxable
year may result in more than 12 months' taxable income or loss of the Old
Partnership being includible in such unitholder's taxable income for the year of
Termination.
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YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value, of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 871
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions, with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25. The partnership has never made a distribution to
its limited partners. This is equivalent to distributions of $ per year on
the number of Tax-Deferral Common OP Units, that you would receive in
exchange for each of your partnership's units. Therefore, distributions
with respect to the Preferred OP Units and Common OP Units that we are
offering are expected to be , immediately following our offer,
than the distribution with respect to your units. See "Comparison of
Ownership of Your Units and AIMCO OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method
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<PAGE> 872
described in "Valuation of Units" provides a meaningful indication of value
for residential apartment properties although there are other ways to value real
estate. A liquidation in the future might generate a higher price for holders of
units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
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<PAGE> 873
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets would be disposed of in an
orderly manner and not sold in forced or distressed sales where sellers might be
expected to dispose of their interests at substantial discounts to their actual
fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
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EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not
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<PAGE> 875
limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between the general partner, special limited partner and limited partners of
your partnership, the terms and conditions of any debt encumbering the
partnership's property, and the transaction costs and fees associated with a
sale of the property. Stanger also relied upon the assurance of your
partnership, AIMCO, and the management of the partnership's property that any
financial statements, budgets, pro forma statements, projections, capital
expenditure estimates, debt, value estimates and other information contained in
this Prospectus Supplement or provided or communicated to Stanger were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the
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<PAGE> 876
value of the partnership's property or other balance sheet assets and
liabilities or other information reviewed between the date of such information
provided and the date of the Fairness Opinion; that your partnership, AIMCO, and
the management of the partnership's property are not aware of any information or
facts that would cause the information supplied to Stanger to be incomplete or
misleading; that the highest and best use of the partnership's property is as
improved; and that all calculations were made in accordance with the terms of
your partnership's agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under California law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing "Heritage Park Escondido Apartments," Partnership owns interests (either directly or through
"Heritage Park Livermore Apartments," "Heritage Village subsidiaries) in numerous multifamily apartment
Anaheim Apartments" and "Villa Serena Apartments" properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash from Operations (as defined in of the AIMCO Operating Partnership's agreement of
your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership
The termination date of your partnership is March 9, Agreement") or as provided by law. See "Description of
2011. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, directly The purpose of the AIMCO Operating Partnership is to
or indirectly, construct, rent-up, develop, own, hold, conduct any business that may be lawfully conducted by
maintain, improve, finance, refinance, operate for the a limited partnership organized pursuant to the
production of income, hold for investment and dispose Delaware Revised Uniform Limited Partnership Act (as
of property situated in the United States. Subject to amended from time to time, or any successor to such
restrictions contained in your partnership's agreement statute) (the "Delaware Limited Partnership Act"),
of limited partnership, your partnership may perform provided that such business is to be conducted in a
all act necessary or appropriate in connection manner that permits AIMCO to be qualified as a REIT,
therewith and reasonably related thereto, including unless AIMCO ceases to qualify as a REIT. The AIMCO
borrowing money, creating liens and investing funds in Operating Partnership is authorized to perform any and
financial instruments. all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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<PAGE> 878
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not less than 400 units for cash time to the limited partners and to other persons, and
and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital
of limited partnership. The capital contribution need contributions as may be established by the general
not be equal for all limited partners and no action or partner in its sole discretion. The net capital
consent is required in connection with the admission of contribution need not be equal for all OP Unitholders.
any additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership may contract The AIMCO Operating Partnership may lend or contribute
with affiliated persons for the management or funds or other assets to its subsidiaries or other
supervision of any or all of the assets of your persons in which it has an equity investment, and such
partnership or for the performance of any other persons may borrow funds from the AIMCO Operating
services which the general partners deem necessary or Partnership, on terms and conditions established in the
advisable for the operation of your partnership. Any sole and absolute discretion of the general partner. To
and all compensation paid to such affiliated persons in the extent consistent with the business purpose of the
connection with services performed for your partnership AIMCO Operating Partnership and the permitted
must be reasonable and fair to your partnership and the activities of the general partner, the AIMCO Operating
partners. Such contracts between your partnership and Partnership may transfer assets to joint ventures,
the general partner or any affiliates must provide that limited liability companies, partnerships,
it may be cancelled at any time by your partnership corporations, business trusts or other business
without penalty upon 60 days prior written notice. In entities in which it is or thereby becomes a
addition, the general partner and its affiliates may participant upon such terms and subject to such
lend money to your partnership which will be repaid in conditions consistent with the AIMCO Operating Part-
accordance with the terms of the advances out of the nership Agreement and applicable law as the general
gross receipts of your partnership with interest at the partner, in its sole and absolute discretion, believes
then prevailing commercial rate or at the highest rate to be advisable. Except as expressly permitted by the
permitted by the applicable usury law, whichever is AIMCO Operating Partnership Agreement, neither the
less. Your partnership may lend money to the general general partner nor any of its affiliates may sell,
partner and its affiliates with the approval of the transfer or convey any property to the AIMCO Operating
limited partners holding a majority of outstanding Partnership, directly or indirectly, except pursuant to
units. transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership are authorized The AIMCO Operating Partnership Agreement contains no
to borrow money on the credit of and enter into restrictions on borrowings, and the general partner has
obligations, recourse and nonrecourse, on behalf of full power and authority to borrow money on behalf of
your partnership and to give as security therefor any the AIMCO Operating Partnership. The AIMCO Operating
of your partnership's property. Partnership has credit agreements that restrict, among
other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
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<PAGE> 879
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners or their designated with a statement of the purpose of such demand and at
representative to inspect and, at their sole cost and such OP Unitholder's own expense, to obtain a current
expense, copy the list of the full name and last known list of the name and last known business, residence or
business or residence address of each partner set forth mailing address of the general partner and each other
in alphabetical order at the principal place of OP Unitholder.
business of your partnership during normal business
hours.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership manages and All management powers over the business and affairs of
controls your partnership and all aspects of its the AIMCO Operating Partnership are vested in AIMCO-GP,
business. The general partner has all the rights and Inc., which is the general partner. No OP Unitholder
powers which may be possessed by a general partner has any right to participate in or exercise control or
under California law. Except as provided in your management power over the business and affairs of the
partnership's agreement of limited partnership, the AIMCO Operating Partnership. The OP Unitholders have
general partner has the exclusive right and power to the right to vote on certain matters described under
exercise the powers possess by the general partners. "Comparison of Ownership of Your Units and AIMCO OP
Subject to the limitations contained in your Units -- Voting Rights" below. The general partner may
partnership's agreement of limited partnership, the not be removed by the OP Unitholders with or without
general partner has the power to perform acts, upon cause.
such terms and conditions as the general partner deems
appropriate and in furtherance of your partnership's In addition to the powers granted a general partner of
business. The limited partners have no right to a limited partnership under applicable law or that are
participate in the management or control of your granted to the general partner under any other
partnership, to act on behalf of your partnership, to provision of the AIMCO Operating Partnership Agreement,
bind your partnership, or, except as specifically the general partner, subject to the other provisions of
authorized in your partnership's agreement of limited the AIMCO Operating Partnership Agreement, has full
partnership, to vote upon any matter involving your power and authority to do all things deemed necessary
partnership. or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Notwithstanding anything to the contrary set forth in
does not limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general
your partnership or the limited partners for any act partner is not liable to the AIMCO Operating
performed in its capacity as general partner. However, Partnership for losses sustained, liabilities incurred
your partnership's agreement of limited partnership or benefits not derived as a result of errors in
does provide that your partnership will indemnify the judgment or mistakes of fact or law of any act or
general partner of your partnership and its affiliates omission if the general partner acted in good faith.
from any expense, liability or loss, including The AIMCO Operating Partnership Agreement provides for
attorney's fees incurred in connection with the defense indemnification of AIMCO, or any director or officer of
of any action or omission by the general partner AIMCO (in its capacity as the previous general partner
performed within the scope of the authority conferred of the AIMCO Operating Partnership), the general
by your partnership's agreement of limited partnership, partner, any officer or director of general partner or
except for acts or omissions constituting fraud, bad the AIMCO Operating Partnership and such other persons
faith, willful misconduct or gross negligence. as the general partner may designate from and against
Notwithstanding the foregoing, your partnership will all losses, claims, damages, liabilities, joint or
not indemnify any person for any liabilities under several, expenses (including legal fees), fines,
Federal and state securities law unless (i) there has settlements and other amounts incurred in connection
been a successful adjudication on the merits of each with any actions relating to the operations of the
count involving alleged securities law violations, (ii) AIMCO Operating Partnership, as set forth in the AIMCO
such claims have been dismissed with prejudice on the Operating Partnership Agreement. The Delaware Limited
merits by a court of competent jurisdiction or (iii) a Partnership Act provides that subject to the standards
court of competent jurisdiction approves a settlement and restrictions, if any, set forth in its partnership
of the claims. If a claim of indemnification (other agreement, a limited partnership may, and shall have
</TABLE>
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<PAGE> 880
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
than for expenses incurred in a successful defense) is the power to, indemnify and hold harmless any partner
asserted against your partnership, your partnership or other person from and against any and all claims and
will notify the court of the position of the SEC with demands whatsoever. It is the position of the
respect to the issue of indemnification for securities Securities and Exchange Commission that indemnification
law violations. Such indemnification paid by your of directors and officers for liabilities arising under
partnership will be to the extent of your partnership the Securities Act is against public policy and is
assets unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner upon a vote of the limited partners owning a affairs of the AIMCO Operating Partnership. The general
majority of the outstanding units and elect a partner may not be removed as general partner of the
substitute general partner if no general partner AIMCO Operating Partnership by the OP Unitholders with
remains. Subject to limitations set forth in your or without cause. Under the AIMCO Operating Partnership
partnership's agreement of limited partnership and the Agreement, the general partner may, in its sole
existence of a remaining general partner, a general discretion, prevent a transferee of an OP Unit from
partner may withdraw from your partnership at any time. becoming a substituted limited partner pursuant to the
An additional general partner may be admitted with the AIMCO Operating Partnership Agreement. The general
consent of the managing general partner and the limited partner may exercise this right of approval to deter,
partners owning a majority of the outstanding units. A delay or hamper attempts by persons to acquire a
limited partner may not transfer its interests without controlling interest in the AIMCO Operating Partner-
the written consent of the managing general partner ship. Additionally, the AIMCO Operating Partnership
which may be withheld at the sole discretion of the Agreement contains restrictions on the ability of OP
managing general partner. Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to add in the AIMCO Operating Partnership Agreement, whereby
representations, duties or obligations of the general the general partner may, without the consent of the OP
partner or surrender a right or power granted to the Unitholders, amend the AIMCO Operating Partnership
general partner, correct any error or ambiguity and as Agreement, amendments to the AIMCO Operating
required by law; provided however that such amendments Partnership Agreement require the consent of the
must be for the benefit of and not adverse to the holders of a majority of the outstanding Common OP
interests of the limited partners, do not effect the Units, excluding AIMCO and certain other limited
distributions to limited partners except for those exclusions (a "Majority in Interest"). Amendments to
amendments required by law and do not affect the the AIMCO Operating Partnership Agreement may be
limited liability of the limited partners. All other proposed by the general partner or by holders of a
amendments must be approved by the limited partners Majority in Interest. Following such proposal, the
owning more than 50% of the units and the general general partner will submit any proposed amendment to
partners. Amendments of provisions that require the the OP Unitholders. The general partner will seek the
consent of a greater percentage than a majority may be written consent of the OP Unitholders on the proposed
amended only the percentage required in such amendment or will call a meeting to vote thereon. See
provisions. In addition, any amendment that adversely "Description of OP Units -- Amendment of the AIMCO
affects a partner or partners must be approved by the Operating Partnership Agreement" in the accompanying
affected parties. Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives no fees for its services as general partner capacity as general partner of the AIMCO Operating
but may receive other fees in connection with Partnership. In addition, the AIMCO Operating Part-
additional services. Moreover, the general partner or nership is responsible for all expenses incurred
certain affiliates may be entitled to compensation for relating to the AIMCO Operating Partnership's ownership
additional services rendered. of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 881
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, no limited partner is personally liable negligence, no OP Unitholder has personal liability for
for claims by creditors of your partnership, except as the AIMCO Operating Partnership's debts and
provided under California law. obligations, and liability of the OP Unitholders for
the AIMCO Operating Partnership's debts and obligations
is generally limited to the amount of their invest-
ment in the AIMCO Operating Partnership. However, the
limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner has the responsibility for the Unless otherwise provided for in the relevant
safekeeping and use of all funds and assets of your partnership agreement, Delaware law generally requires
partnership and must not employ or permit others to a general partner of a Delaware limited partnership to
employ such funds or assets in any manner except for adhere to fiduciary duty standards under which it owes
the exclusive benefit of your partnership. Your its limited partners the highest duties of good faith,
partnership's agreement of limited partnership provides fairness and loyalty and which generally prohibit such
that the general partner and its affiliates with whom general partner from taking any action or engaging in
it contracts on behalf of your partnership must devote any transaction as to which it has a conflict of
such of their time to the business of your partnership interest. The AIMCO Operating Partnership Agreement
as they may, in their sole discretion, deem necessary expressly authorizes the general partner to enter into,
to conduct the partnership's business. The general on behalf of the AIMCO Operating Partnership, a right
partner and its affiliates may engage for its own of first opportunity arrangement and other conflict
account and for the account of others in any business avoidance agreements with various affiliates of the
ventures, including the purchase of real estate AIMCO Operating Partnership and the general partner, on
properties, the development, operation, management or such terms as the general partner, in its sole and
syndication of real estate properties, and your absolute discretion, believes are advisable. The AIMCO
partnership shall have no right to participate therein. Operating Partnership Agreement expressly limits the
None of the partners is limited in any manner to the liability of the general partner by providing that the
performance of services for the properties owned by general partner, and its officers and directors will
your partnership alone. However, the general partner not be liable or accountable in damages to the AIMCO
must at all times act in the best interests of your Operating Partnership, the limited partners or
partnership and in no event contrary to the fiduciary assignees for errors in judgment or mistakes of fact or
relationship that it bears at all times in relation to law or of any act or omission if the general partner or
your partnership and to each of the partners with such director or officer acted in good faith. See
regard to your partnership's business. "Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 882
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders
partners owning a majority of the Operating Partnership Agreement, have voting rights only with
outstanding units may without the the holders of the Preferred OP respect to certain limited matters
concurrence of the general Units will have the same voting such as certain amendments and
partners, vote to amend your rights as holders of the Common OP termination of the AIMCO Operating
partnership's agreement of limited Units. See "Description of OP Partnership Agreement and certain
partnership, subject to certain Units" in the accompanying transactions such as the
limitations; dissolve and terminate Prospectus. So long as any institution of bankruptcy
your partnership; remove a gen- Preferred OP Units are outstand- proceedings, an assignment for the
eral partner; elect one or more ing, in addition to any other vote benefit of creditors and certain
general partners; and approve or or consent of partners required by transfers by the general partner of
disapprove the sale of all or law or by the AIMCO Operating its interest in the AIMCO Operating
substantially all of the assets Partnership Agree- Part-
</TABLE>
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<PAGE> 883
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
of your partnership. The consent of ment, the affirmative vote or nership or the admission of a
the limited partners owing a consent of holders of at least 50% successor general partner.
majority of the outstanding units of the outstanding Preferred OP
is also necessary to confess a Units will be necessary for Under the AIMCO Operating Partner-
judgment exceeding $100,000, exe- effecting any amendment of any of ship Agreement, the general partner
cute any agreement or assignment the provisions of the Partnership has the power to effect the
for the benefit of creditors of Unit Designation of the Preferred acquisition, sale, transfer,
your partners, permit an affiliate OP Units that materially and exchange or other disposition of
of the general partners to use your adversely affects the rights or any assets of the AIMCO Operating
partnership's property other than preferences of the holders of the Partnership (including, but not
in furtherance of your Preferred OP Units. The creation or limited to, the exercise or grant
partnership's business and lend any issuance of any class or series of of any conversion, option,
partnership funds to the general partnership units, including, privilege or subscription right or
partners or their affiliates. without limitation, any partner- any other right available in
ship units that may have rights connection with any assets at any
A general partner may cause the senior or superior to the Preferred time held by the AIMCO Operating
dissolution of the your partnership OP Units, shall not be deemed to Partnership) or the merger,
by retiring, unless the remaining materially adversely affect the consolidation, reorganization or
general partner elects to continue rights or preferences of the other combination of the AIMCO
your partnership within 120 days or holders of Preferred OP Units. With Operating Partnership with or into
if the there is no remaining respect to the exercise of the another entity, all without the
general partner, the limited above described voting rights, each consent of the OP Unitholders.
partners owning more the 50% of the Preferred OP Units shall have one
then outstanding units may elect a (1) vote per Preferred OP Unit. The general partner may cause the
new general partner to continue dissolution of the AIMCO Operating
your partnership. Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such
Operations are to be distributed provided, however, that at any time portion as the general partner may
from time to time but no less often and from time to time on or after in its sole and absolute discretion
than quarterly and not later than the fifth anniversary of the issue determine, of Available Cash (as
ninety days after the end of the date of the Preferred OP Units, the defined in the AIMCO Operating
fiscal quarter. The distributions AIMCO Operating Partnership may Partnership Agreement) generated by
payable to the partners are not adjust the annual distribution rate the AIMCO Operating Partnership
fixed in amount and depend upon the on the Preferred OP Units to the during such quarter to the general
operating results and net sales or lower of (i) % plus the annual partner, the special limited
refinancing proceeds available from interest rate then applicable to partner and the holders of Common
the disposition of your U.S. Treasury notes with a maturity OP Units on the record date
partnership's assets. Your of five years, and (ii) the annual established by the general partner
partnership has not made dividend rate on the most recently with respect to such quarter, in
distributions in the past and is issued AIMCO non-convertible accordance with their respective
not projected to make distributions preferred stock which ranks on a interests in the AIMCO Operating
in 1998. parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
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<PAGE> 884
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part-
substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the
such person if: (1) such transfer on any securities exchange. The transferability of the OP Units.
is in compliance with applicable Preferred OP Units are subject to Until the expiration of one year
Federal and state securities law, restrictions on transfer as set from the date on which an OP
(2) a written assignment has been forth in the AIMCO Operating Unitholder acquired OP Units,
duly executed by the assignor and Partnership Agreement. subject to certain exceptions, such
assignee, (3) the written approval OP Unitholder may not transfer all
of the managing general partner Pursuant to the AIMCO Operating or any portion of its OP Units to
which may be withheld in the sole Partnership Agreement, until the any transferee without the consent
and absolute discretion of the expiration of one year from the of the general partner, which
managing general partner has been date on which a holder of Preferred consent may be withheld in its sole
granted and (4) the assignor or the OP Units acquired Preferred OP and absolute discretion. After the
assignee pays a transfer fee. Units, subject to certain expiration of one year, such OP
exceptions, such holder of Unitholder has the right to
There are no redemption rights Preferred OP Units may not transfer transfer all or any portion of its
associated with your units. all or any portion of its Pre- OP Units to any person, subject to
ferred OP Units to any transferee the satisfaction of certain
without the consent of the general conditions specified in the AIMCO
partner, which consent may be Operating Partnership Agreement,
withheld in its sole and absolute including the general partner's
discretion. After the expiration of right of first refusal. See
one year, such holders of Preferred "Description of OP Units --
OP Units has the right to transfer Transfers and Withdrawals" in the
all or any portion of its Preferred accompanying Prospectus.
OP Units to any person, subject to
the satisfaction of
</TABLE>
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<PAGE> 885
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
certain conditions specified in the After the first anniversary of
AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
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<PAGE> 886
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner but may receive reimbursement for expenses
generated in that capacity from your partnership. The property manager received
management fees of $333,000 in 1996, $269,000 in 1997 and $135,829 for the first
six months of 1998. The AIMCO Operating Partnership has no current intention of
changing the fee structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
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<PAGE> 887
YOUR PARTNERSHIP
GENERAL
Shearson/Calmark Heritage Park II Ltd. is a California limited partnership
which raised net proceeds of approximately $18,650,000 in 1986 through a private
offering. The promoter for the private offering of your partnership was Shearson
Lehman Brothers/Calmark. Insignia acquired your partnership in 1992. AIMCO
acquired Insignia in October, 1998. There are currently a total of 286 limited
partners of your partnership and a total of 373 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the small
number of apartment properties described below. Your partnership has no
employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on November 10, 1986 for the purpose of owning
and operating a small number of apartment properties located in Escondido,
California; Livermore, California; Anaheim, California and Chino, California,
known as "Heritage Park Escondido Apartments," "Heritage Park Livermore
Apartments," "Heritage Village Anaheim Apartments" and "Villa Serena
Apartments." There are 196 apartment units in Heritage Park Escondido
Apartments. The average annual rent per apartment unit is $5,893. In both 1996
and 1997, Heritage Park Escondido Apartments had an average occupancy rate of
96.4%. Heritage Park Livermore Apartments has 167 apartment units. The total
rentable square footage is 88,608 square feet. In both 1996 and 1997, Heritage
Park Livermore Apartments had an average occupancy rate of approximately of
95.81%. The average annual rent per apartment unit is $7,640. In Heritage
Village Anaheim Apartments, there are 196 apartment units. The total rentable
square footage is 118,956 square feet and the average annual rent per apartment
unit is $6,971. In both 1996 and 1997, Heritage Park Anaheim Apartments had an
average occupancy rate of 96.43%. There are 186 apartment units in Villa Serena
Apartments. The total rentable square footage is 90,960 square feet and the
average annual rent per apartment unit is $5,509. In both 1996 and 1997, Villa
Serena Apartments had an average occupancy rate of 96.83%.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since 1992, your partnership's property has been managed by an entity which
is now an affiliate of AIMCO. Pursuant to the management agreement between the
property manager and your partnership, the property manager operates your
partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $333,000, $269,000 and $135,829, respectively.
The manager of your partnership's property is an affiliate of the general
partner of your partnership and of AIMCO.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is not limited in its ability to expand its
investment portfolio. Your partnership will terminate on March 9, 2011 unless
earlier dissolved. Your partnership has no present intention to liquidate, sell,
finance or refinance your partnership's property within any specified time
period.
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<PAGE> 888
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is not limited
to the assets acquired with the initial equity raised through the sale of units
to the limited partners of your partnership or the assets initially contributed
to your partnership by the limited partners, as well as the debt financing
obtained by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage
notes outstanding on Heritage Park Escondido Apartments of $6,150,000, a
Heritage Park Livermore Apartments of $6,870,000 and Heritage Village Anaheim
Apartments of $7,685,000 payable to Wells Fargo and First Trust of NY, which
bear interest at variable rates and are due from 2007 to 2022. There is also a
mortgage note on Villa Serena Apartments, the balance of which is $4,980,103, as
of June 30, 1998. The note is payable to GMAC, bears interest at 6.25% and is
due November 2007. Your partnership's agreement of limited partnership also
allows the general partner of your partnership to lend funds to your
partnership. Currently, the general partner of your partnership has no loan
outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
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<PAGE> 889
Below is selected financial information for Calmark Heritage Park II Ltd.
taken from the financial statements described above. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
CALMARK HERITAGE PARK II LTD.
------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
--------------------------- ------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash
Equivalents......... $ 776,466 $ 1,196,512 $ 820,000 $ 222,000 $ 298,129 $ 301,741 $ 714,562
Land & Building....... 33,135,451 35,127,866 33,039,000 39,473,000 42,066,279 41,887,957 43,508,956
Accumulated
Depreciation........ (12,904,694) (14,100,298) (12,444,000) (13,639,000) (13,687,276) (12,563,660) (11,394,522)
Other Assets.......... 2,281,111 3,770,709 3,851,000 3,562,000 3,120,709 3,020,656 2,639,988
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
Assets..... $ 23,288,334 $ 25,994,789 $ 25,266,000 $ 29,618,000 $ 31,797,841 $ 32,646,694 $ 35,468,984
============ ============ ============ ============ ============ ============ ============
Mortgage & Accrued
Interest............ $ 29,798,625 $ 31,673,640 $ 31,540,000 $ 36,865,000 $ 39,312,783 $ 39,142,350 $ 39,766,148
Other Liabilities..... 201,609 295,526 291,000 352,000 327,402 418,056 370,329
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
Liabilities.. 30,000,234 36,965,819 31,831,000 37,217,000 39,640,185 39,560,406 40,136,477
------------ ------------ ------------ ------------ ------------ ------------ ------------
Partners Deficit...... $ (6,711,900) $ (5,974,377) $ (6,565,000) $ (7,599,000) $ (7,842,344) $ (6,913,712) $ (4,667,493)
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CALMARK HERITAGE PARK II LTD.
-------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue.................... $2,457,311 $2,451,428 $4,884,000 $5,965,000 $6,079,925 $ 5,916,309 $5,803,585
Other Income...................... 103,325 110,230 276,000 177,000 193,029 162,435 264,204
---------- ---------- ---------- ---------- ---------- ----------- ----------
Total Revenue............ 2,560,636 2,561,658 5,160,000 6,142,000 6,272,954 6,078,744 6,067,789
---------- ---------- ---------- ---------- ---------- ----------- ----------
Operating Expenses................ 1,262,593 1,083,762 2,441,000 2,384,000 2,509,899 2,452,985 1,968,263
General & Administrative.......... 144,023 68,561 115,000 476,000 313,397 289,100 661,883
Depreciation...................... 461,000 461,000 922,000 1,196,000 1,254,087 1,299,612 1,284,038
Interest Expense.................. 652,784 654,505 1,819,000 2,404,000 2,635,984 2,342,567 2,353,119
Property Taxes.................... 185,965 201,207 361,000 443,000 488,219 474,088 491,992
---------- ---------- ---------- ---------- ---------- ----------- ----------
Total Expenses........... 2,706,365 2,469,035 5,658,000 6,903,000 7,201,586 6,858,352 6,759,295
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net Income (Loss) Before
Extraordinary Item..... $ (145,729) 92,623 (498,000) (761,000) $ (928,632) (779,608) $ (691,506)
========== ========== ========== ========== ========== =========== ==========
Extraordinary Item................ -- 1,532,000 1,532,000 1,004,000 -- (1,466,611) --
========== ========== ========== ========== ========== =========== ==========
Net Income (Loss)........ $ (145,729) $1,624,623 $1,034,000 $ 243,000 $ 928,632 $(2,246,219) $ 691,506
========== ========== ========== ========== ========== =========== ==========
</TABLE>
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<PAGE> 890
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized a net loss of $145,729 for the six months ended
June 30, 1998, compared to $1,624,623 for the six months ended June 30, 1997.
The decrease in net income of $1,770,352, or 108.97% was primarily the result of
an extraordinary gain on the foreclosure of two of the partnerships properties
in 1997. These factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,560,636 for the six months ended June 30, 1998, compared to $2,561,658 for
the six months ended June 30, 1997, a decrease of $1,022, or .04%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,262,593 for
the six months ended June 30, 1998, compared to $1,083,762 for the six months
ended June 30, 1997, an increase of $178,831 or 16.50%. This is due primarily to
non-capitalized exterior and parking lot repairs and major landscaping.
Management expenses totaled $135,829 for the six months ended June 30, 1998,
compared to $130,766 for the six months ended June 30, 1997, an increase of
$5,063, or 3.87%.
General and Administrative Expenses
General and administrative expenses totaled $144,023 for the six months
ended June 30, 1998 compared to $68,561 for the six months ended June 30, 1997,
an increase of $75,462 or 110.07%. The increase is primarily due to an increase
in legal and other professional fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $652,784 for the six months ended June 30, 1998, compared to
$654,505 for the six months ended June 30, 1997, a decrease of $1,721, or .26%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $1,034,000 for the year ended
December 31, 1997, compared to $243,000 for the year ended December 31, 1996.
The increase in net income of $791,000, or 325.51% was primarily the result of
the reduced expenses related to the sale and foreclosure of two of the
properties in 1996 and early 1997. These factors are discussed in more detail in
the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$5,160,000 for the year ended December 31, 1997, compared to $6,142,000 for the
year ended December 31, 1996, a decrease of $982,000,
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<PAGE> 891
or 15.99%. The decrease resulted from the sale and foreclosure of two of
the partnership's properties during 1996 and early 1997.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $2,441,000 for
the year ended December 31, 1997, compared to $2,384,000 for the year ended
December 31, 1996, an increase of $57,000 or 39%. Management expenses totaled
$269,000 for the year ended December 31, 1997, compared to $333,000 for the year
ended December 31, 1996, a decrease of $64,000, or 19.22%. The decrease resulted
from the sale and foreclosure of two of the Partnership's properties during 1996
and early 1997.
General and Administrative Expenses
General and administrative expenses totaled $115,000 for the year ended
December 31, 1997 compared to $476,000 for the year ended December 31, 1996, a
decrease of $361,000 or 75.84%. The decrease is primarily due to the sale and
foreclosure of two of the partnership's properties during 1996 and early 1997.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $1,819,000 for the year ended December 31, 1997, compared to
$2,404,000 for the year ended December 31, 1996, a decrease of $585,000, or
24.33%. The decrease results from the extinguishment of two mortgages during
1996 and early 1997 related to the sale and foreclosure of two properties.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $243,000 for the year ended
December 31, 1996, compared to a net loss of $(928,632) for the year ended
December 31, 1995. The increase in net income of $1,171,632, or 126.17% was
primarily the result of a gain on the foreclosure of one of the partnership's
properties during 1996 and the reduced expenses subsequent to the foreclosure.
These factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$6,142,000 for the year ended December 31, 1996, compared to $6,272,954 for the
year ended December 31, 1995, a decrease of $130,954, or 2.09%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $2,384,000 for
the year ended December 31, 1996, compared to $2,509,899 for the year ended
December 31, 1995, a decrease of $125,899 or 5.02%. The decrease is primarily
due to reduced property expenses after the foreclosure of one of the
partnership's properties during 1996. Management expenses totaled $333,000 for
the year ended December 31, 1996, compared to $334,527 for the year ended
December 31, 1995, a decrease of $1,527, or 0.46%.
General and Administrative Expenses
General and administrative expenses totaled $476,000 for the year ended
December 31, 1996 compared to $313,397 for the year ended December 31, 1995, an
increase of $162,603 or 51.88%. The increase is
S-77
<PAGE> 892
primarily due to an increase in professional and other administration fees
associated with the bankruptcy proceedings.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $2,404,000 for the year ended December 31, 1996, compared to
$2,635,984 for the year ended December 31, 1995, a decrease of $231,984, or
8.80%. The decrease results from the extinguishment of one mortgage related to
the foreclosure of one of the properties in mid-1996.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $776,466 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Your partnership's agreement of
limited partnership does not limit the liability of the general partners to your
partnership or the limited partners for any act performed in their capacity as
general partner. The general partner of your partnership is owned by AIMCO. See
"Conflicts of Interest."
Your partnership's agreement of limited partnership does provide that your
partnership will indemnify the general partners of your partnership and their
affiliates are entitled to indemnification from any expense, liability or loss,
including attorney's fees incurred in connection with the defense of any action
or omission by the general partners performed within the scope of the authority
conferred by your partnership's agreement of limited partnership, except for
acts or omissions constituting fraud, bad faith, willful misconduct or gross
negligence. Notwithstanding the foregoing, your partnership will not indemnify
any person for any liabilities under federal and state securities law unless (i)
there has been a successful adjudication on the merits of each count involving
alleged securities law violations, (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction or (iii) a court of
competent jurisdiction approves a settlement of the claims. If a claim of
indemnification (other than for expenses incurred in a successful defense) is
asserted against your partnership, your partnership will notify the court of the
position of the SEC with respect to the issue of indemnification for securities
law violations. Such indemnification paid by your partnership will be to the
extent of your partnership assets. As part of its assumption of liabilities in
the consolidation, AIMCO will indemnify the general partner of your partnership
and their affiliates for periods prior to and following the consolidation to the
extent of the indemnity under the terms of your partnership's agreement of
limited partnership and applicable law.
The general partners may, on behalf of your partnership, obtain a general
partner liability insurance policy at your partnership's expense that would
insure the general partners and their affiliates for liabilities they may incur
with respect to claims made against them for certain wrongful or allegedly
wrongful acts, including certain errors, misstatements, misleading statement,
omissions, neglect or breached of duty, provided that your partnership will not
be required to pay the premiums for this policy to the extent of coverage for
those acts and omission as to which the foregoing parties could not receive
indemnification under your partnership's agreement of limited partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has not made distribution in the last five years. The
original cost per unit was $582,813.
S-78
<PAGE> 893
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner) was as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1994......................... 0 0 0
1995......................... 0 0 0
1996......................... 0 0 0
1997......................... 0 0 0
1998 (through June 30)....... 1 0.27% 1
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement of fees) in its capacity as general partner of your partnership as
described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ---------------
<S> <C>
1994........................................................ $37,392
1995........................................................ $46,404
1996........................................................ $31,000
1997........................................................ $25,000
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................................ $334,527
1996........................................................ $333,000
1997........................................................ $269,000
1998 (through June 30)...................................... $135,829
</TABLE>
S-79
<PAGE> 894
If the offer had been made in such prior periods, there would not have been any
material difference in the compensation and distributions that would have been
paid to the general partner of your partnership, or the company paid to the
property manager or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Calmark Heritage Park II Ltd. at December 31,
1997, 1996 and 1995 and for each of the three years then ended, appearing in
this Prospectus Supplement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
S-80
<PAGE> 895
INDEX FINANCIAL STATEMENT
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF CALMARK HERITAGE PARK II LTD. PAGE
----------------------------------------------------- ----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997
(Unaudited)............................................... F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (Unaudited)........................ F-4
Note A -- Basis of Presentation............................. F-4
Independent Auditors' Report................................ F-5
Balance Sheet as of December 31, 1997....................... F-6
Statement of Operations for the year ended December 31,
1997...................................................... F-7
Statement of Changes in Partners' Deficit for the year ended
December 31, 1997......................................... F-8
Statement of Cash Flows for the year ended December 31,
1997...................................................... F-9
Notes to Financial Statements............................... F-10
Independent Auditors' Report................................ F-16
Balance Sheet as of December 31, 1996....................... F-17
Statement of Operations for the year ended December 31,
1996...................................................... F-18
Statement of Changes in Partners' Deficit for the year ended
December 31, 1996......................................... F-19
Statement of Cash Flows for the year ended December 31,
1996...................................................... F-20
Notes to Financial Statements............................... F-22
Independent Auditors' Report................................ F-27
Balance Sheet as of December 31, 1995....................... F-28
Statement of Operations for the year ended December 31,
1995...................................................... F-29
Statement of Changes in Partners' Deficit for the year ended
December 31, 1995......................................... F-30
Statement of Cash Flows for the year ended December 31,
1995...................................................... F-31
Notes to Financial Statements............................... F-32
</TABLE>
F-1
<PAGE> 896
CALMARK HERITAGE PARK II LTD.
CONDENSED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 776,466
Receivables and Deposits.................................... 372,484
Investments................................................. --
Restricted Escrows.......................................... 745,026
Other Assets................................................ 1,163,601
Investment Property:
Land...................................................... $ 4,154,014
Building and related personal property.................... 28,981,437
------------
33,135,451
Less: Accumulated depreciation............................ (12,904,694) 20,230,757
------------ ------------
Total Assets:..................................... $ 23,288,334
============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 37,505
Other Accrued Liabilities................................... 57,773
Accrued Interest............................................ 2,563,522
Property Taxes Payable...................................... --
Tenant Security Deposits.................................... 106,331
Notes Payable............................................... 27,235,103
Partners' Capital........................................... (6,711,900)
------------
Total Liabilities and Partners' Capital........... $ 23,288,334
============
</TABLE>
See accompanying note
F-2
<PAGE> 897
CALMARK HERITAGE PARK II LTD.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Rental Income............................................. $2,457,311 $2,451,428
Other Income.............................................. 103,325 110,230
(Gain) Loss on Disposition of Property.................... -- 1,532,000
Casualty Gain/Loss........................................ -- --
---------- ----------
Total Revenues.................................... 2,560,636 4,093,658
Expenses:
Operating Expenses........................................ 1,262,593 1,083,762
General and Administrative Expenses....................... 144,023 68,561
Depreciation Expense...................................... 461,000 461,000
Interest Expense.......................................... 652,784 654,505
Property Tax Expense...................................... 185,965 201,207
---------- ----------
Total Expenses.................................... 2,706,365 2,469,035
---------- ----------
Net Income (Loss)................................. $ (145,729) $1,624,623
========== ==========
</TABLE>
See accompanying note
F-3
<PAGE> 898
CALMARK HERITAGE PARK II LTD.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDING JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ (145,729) $1,624,623
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 502,929 489,694
Gain on sale of investment property.................... -- (1,532,000)
Changes in accounts:
Receivables and deposits and other assets............ (220,014) (406,751)
Accounts Payable and accrued expenses................ (373,040) (78,284)
---------- ----------
Net cash provided by (used in) operating
activities...................................... (235,854) 97,282
---------- ----------
Investing Activities:
Property improvements and replacements.................... (96,757) (56,568)
Proceeds from sale of investment property................. -- 907,000
Net (increase)/decrease in restricted escrows............. 1,747,974 169,348
---------- ----------
Net cash provided by (used in) investing
activities...................................... 1,651,217 1,019,780
---------- ----------
Financing Activities:
Payments on mortgage...................................... (58,897) (37,550)
Payments on notes......................................... (1,600,000) (105,000)
Additional borrowings..................................... 200,000 --
Partners' Distributions................................... -- --
---------- ----------
Net cash provided by (used in) financing
activities...................................... (1,458,897) (142,550)
---------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... (43,534) 974,512
Cash and cash equivalents at beginning of year.............. 820,000 222,000
---------- ----------
Cash and cash equivalents at end of period.................. $ 776,466 $1,196,512
========== ==========
</TABLE>
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Calmark Heritage Park II
Ltd. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year-end. The results of
operations for the interim periods presented are not necessarily indicative of
the results for the entire year.
F-4
<PAGE> 899
REPORT OF INDEPENDENT AUDITORS
The Partners
Calmark Heritage Park II Limited Partnership
We have audited the accompanying balance sheet of Calmark Heritage Park II
Limited Partnership as of December 31, 1997, and the related statements of
operations, changes in partners' deficit and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Calmark Heritage Park II
Limited Partnership at December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Calmark Heritage Park II Limited Partnership will continue as a going concern.
As more fully described in Note A, the Partnership has incurred recurring
operating losses and is currently in default on a portion of its long-term debt.
In addition, the letters of credit which provide additional security on
$22,305,000 in indebtedness expire in June 1998. These conditions raise
substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/s/ ERNST & YOUNG LLP
March 17, 1998
Greenville, South Carolina
F-5
<PAGE> 900
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
Cash and cash equivalents:.................................. $ 820
Receivables and deposits.................................... 278
Restricted escrows.......................................... 2,493
Other assets................................................ 1,080
Investment properties (Notes C and D)
Land...................................................... $ 4,154
Buildings and related personal property................... 28,885
-------
33,039
Less accumulated depreciation............................. (12,444) 20,595
------- --------
$ 25,266
========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 122
Tenant security deposits.................................. 104
Accrued interest.......................................... 2,846
Other liabilities......................................... 65
Long-term debt, including $23,255 in default (Note C)..... 28,694
--------
31,831
Partners' deficit:
General Partners.......................................... $ (66)
Limited Partners.......................................... (6,499) (6,565)
------- --------
$ 25,266
========
</TABLE>
See accompanying notes.
F-6
<PAGE> 901
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $4,884
Other income.............................................. 276
Gain on sale of investment property....................... 1,532
------
6,692
Expenses:
Operating................................................. $2,441
General and administrative................................ 115
Interest.................................................. 1,819
Depreciation.............................................. 922
Property taxes............................................ 361 5,658
------ ------
Net income.................................................. $1,034
======
</TABLE>
See accompanying notes.
F-7
<PAGE> 902
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- -------
<S> <C> <C> <C>
Partners' deficit at December 31, 1996...................... $(76) $(7,523) $(7,599)
Net income................................................ 10 1,024 1,034
---- ------- -------
Partners' deficit at December 31, 1997...................... $(66) $(6,499) $(6,565)
==== ======= =======
</TABLE>
See accompanying notes.
F-8
<PAGE> 903
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating activities
Net income................................................ $ 1,034
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 922
Amortization........................................... 69
Gain on sale of investment property.................... (1,532)
Changes in operating assets and liabilities:
Receivables and deposits............................. 28
Other assets......................................... (148)
Accounts payable..................................... (49)
Tenant security deposit liabilities.................. (29)
Accrued interest..................................... 380
Other liabilities.................................... 17
-------
Net cash provided by operating activities......... 692
Investing activities
Property improvements and replacements.................... (85)
Net deposits to restricted escrows........................ (238)
-------
Net cash used in investing activities............. (323)
Financing activities
Proceeds from sale of investment property................. 907
Payments on long-term debt................................ (678)
-------
Net cash provided by financing activities......... 229
-------
Net increase in cash and cash equivalents......... 598
Cash and cash equivalents at December 31, 1996............ 222
-------
Cash and cash equivalents at December 31, 1997............ $ 820
=======
Supplemental disclosure of cash flow information
Cash paid for interest expense.............................. $ 1,369
=======
Supplemental disclosure of noncash activity
Adjustment to long-term debt in connection with the
assumption of mortgage debt related to the sale of Las
Vegas Apartments in 1997.................................. $ 5,027
=======
</TABLE>
See accompanying notes.
F-9
<PAGE> 904
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS)
NOTE A -- GOING CONCERN
The accompanying financial statements have been prepared assuming Calmark
Heritage Park II Limited Partnership (the "Partnership") will continue as a
going concern. The Partnership has incurred recurring operating losses and is in
default on a portion of its long term debt.
The Partnership incurred an operating loss of approximately $498,000 for
the year ended December 31, 1997, before the gain recognized on the sale of an
investment property. As of December 31, 1997, there is a partners' deficit of
approximately $6,565,000. The Partnership realized positive cash flow of
approximately $598,000 for 1997, due primarily to net proceeds received from the
sale of an investment property.
The Partnership has indebtedness under three 1992 Series A Bond Issues,
with a balance at December 31, 1997 of $22,305,000. These bonds are secured by
first deeds of trust on the Anaheim, Escondido, and Livermore properties. The
Letters of Credit on these bonds expired in November 1997, and the Partnership
has received extensions through June 1998. The bonds are in default due to a
violation of the loan agreements that require letters of credit for a minimum of
one year. Management is presently in negotiations with the Trustees to re-write
the bonds in order to obtain more favorable terms.
The subordinated debt for Anaheim and Escondido matured in January 1997.
The Escondido note in the amount of $950,000, plus related accrued interest was
extended until March 1998; however, the extension has expired and such amounts
are in default due to nonpayment. The Partnership has received an extension
through May 15, 1998 for the Anaheim note. Management is also in negotiations to
modify these subordinated notes.
There can be no assurance that these negotiations with the lenders will be
successful. Currently, there are no plans to sell any of the remaining
properties. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or amounts and classification of liabilities that may result from this
uncertainty.
NOTE B -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The Partnership was formed in November 1986 to acquire and operate senior
citizens apartment communities located in California and Nevada.
The Partnership will terminate on March 9, 2011 unless terminated sooner by
vote of the Limited Partners or other dissolution. Other dissolution may occur
upon the bankruptcy or dissolution of a General Partner unless the Partners
elect to continue the Partnership.
The General Partners of the Partnership are Heritage Park Investors, Inc.,
a California corporation (the Managing General Partner), Calmark Investors,
Ltd., a California Limited Partnership (the Associate General Partner), and
Heritage Park II, Inc., a Delaware corporation (the Lehman General Partner).
Allocations to Partners
Income and Losses
Income from operations is allocated pro rata to the General Partners and to
the Limited Partners (collectively the "Partners") as a class in the same ratio
as cash distributions are made to such partners (see below). In the event that
no cash distributions are made to the Partners during any year, income from
operations shall be allocated 1% to the General Partners and 99% to the Limited
Partners.
F-10
<PAGE> 905
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Losses from operations are generally allocated 1% to the General Partners
and 99% to the Limited Partners. Income from disposition or partial disposition
of Partnership property and income upon termination and liquidation of the
Partnership will be allocated as follows:
a. To Partners with negative adjusted capital account balances (as
defined), after accounting for distributions described below, in
proportion to their negative adjusted capital account balances.
b. Any remaining income will be allocated 5% to the Lehman General
Partner, 25% collectively to the Managing General Partner and
Associate General Partner and 70% to the Limited Partners.
Losses from disposition or partial disposition of the Partnership property
and all losses upon the termination and liquidation of the Partnership shall be
allocated as follows:
a. To all Partners with positive adjusted capital balances in
proportion to their adjusted capital balances.
b. Any remaining losses will be allocated 1% to the General Partners
and 99% to the Limited Partners.
Cash Distributions
Cash from operations is to be distributed, when available, not less often
than quarterly and not later than ninety days after the end of each fiscal
quarter of the Partnership in the following order of priority:
a. 1% collectively to the Managing General Partner and the Associate
General Partner and 99% to the Limited Partners as a class until
such time as the Limited Partners have received in the aggregate
an amount equal to a 10% per annum cumulative (but not compounded)
return on their adjusted interest investment (as defined).
b. The remainder is allocated 25% collectively to the Managing
General Partner and the Associate General Partner, 5% to the
Lehman General Partner and 70% to the Limited Partners as a class.
In general, any proceeds remaining after the sale of the properties and
dissolution of the Partner ship shall be distributed to the Partners in
accordance with their capital accounts.
Investment Properties
Investment properties are recorded at cost. Depreciation is provided by the
straight-line method over the estimated lives of the investment properties and
related personal property.
Loan Costs
Loan costs are amortized on a straight-line basis over the lives of the
respective debt.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks, money market
funds and certificates of deposit with original maturities of less than 90 days.
At certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease and includes such deposits in "Receivables and deposits."
Deposits are refunded when the tenant vacates the apartment if there has been no
damage to the unit and the tenant is current on its rental payments.
F-11
<PAGE> 906
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Income Taxes
Under provisions of the Internal Revenue Code and applicable state revenue
and taxation codes, partnerships are generally not subject to income taxes. For
tax purposes, any income or loss realized is that of the individual partners,
not the Partnership.
Advertising
The Partnership expenses the costs of advertising as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE C -- LONG-TERM DEBT
Long-term debt at December 31, 1997 consists of the following (in
thousands):
<TABLE>
<S> <C>
Indebtedness under three 1992 Series A Bond Issues to
various housing authorities bearing interest at variable
rates, secured by first deeds of trust on the Anaheim,
Escondido, and Livermore properties. Interest payments to
the trustee are required semi-annually; the rate is reset
every seven days and is to be that which would produce a
par bid if the bonds were sold on the first day of the
next seven-day reset period. The average annual interest
rates for 1997 was 3.5%. Two of the bond issues mature in
2007 and one in 2022; they can be redeemed prior to
maturity without penalty, subject to certain provisions.
This indebtedness is in default due to a violation of a
loan covenant related to required letters of credit terms
(see Note A).............................................. $22,305
Mortgage note payable bearing interest at 9.78% per annum,
secured by first deeds of trust on the Villa Serena. This
note requires monthly payments of principal and interest
of approximately $47 with a balloon payment of $3,824 due
in November 2007.......................................... 5,039
Subordinated mortgage notes payable on the Anaheim,
Livermore and Escondido properties. The Anaheim note in
the amount of $300 bears interest at 12% and requires
monthly interest payments of approximately $3. All unpaid
interest plus the principal amount is due in May 1998. The
Livermore note in the amount of $100 bears interest at 5%
per annum and the interest and principal amounts are due
in 2084. The Escondido note in the amount of $950 bears
interest at 12% per annum, with monthly payments of 25% of
net cash flow as defined, applied first to unpaid interest
and then to principal This note is in default due to
maturity in March 1998.................................... 1,350
-------
$28,694
=======
</TABLE>
The Partnership has irrevocable letters of credit with First Interstate
Bank in the amounts of $8,557,000 (Anaheim), $7,142,000 (Escondido) and
$7,263,000 (Livermore), respectively. These letters of credit are
F-12
<PAGE> 907
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
additional security for the 1992 Series A Bond Issues, and are secured by second
deeds of trust on the Anaheim, Escondido and Livermore properties. The
Partnership is required to pay monthly servicing fees of approximately 1% per
annum, based on the out standing amounts. These letters of credit expire in June
1998. The Partnership also has a standby letter of credit in the amount of
$8,980,000 which is additional security for the Anaheim letter of credit. This
standby letter of credit expires in May 1998.
The Partnership is required to fund a Cash Collateral Account and Debt
Service Reserve Account, based on monthly net cash flow as defined, from these
three properties, up to a combined maximum of $1,600,000. These accounts serve
as additional collateral for the bonds. At December 31, 1997, the balance in the
Cash Collateral Account and Debt Service Reserve was $1,629,000.
Principal maturities of long-term debt subsequent to December 31, 1997 are
as follows (in thousands):
<TABLE>
<S> <C>
1998 (including $23,255 in default)...................... $23,632
1999..................................................... 84
2000..................................................... 93
2001..................................................... 103
2002..................................................... 113
Thereafter............................................... 4,669
-------
$28,694
=======
</TABLE>
NOTE D -- GROUND LEASE
The Livermore property is subject to a ground lease that expires in
November 2084. The lease provides for rental payments of $5,000 per month. In
addition, the Partnership is required to pay annually the difference between the
minimum monthly rent described above and 4 1/2% of gross rental income from the
Livermore property for the preceding 12 months. The expense for 1997 was
$60,000.
Future minimum lease payments subsequent to December 31, 1997 are
summarized as follows (in thousands):
<TABLE>
<S> <C>
1998...................................................... $ 60
1999...................................................... 60
2000...................................................... 60
2001...................................................... 60
2002...................................................... 60
Thereafter................................................ 4,910
------
$5,210
======
</TABLE>
NOTE E -- TRANSACTIONS WITH AFFILIATED PARTIES
An affiliate of Insignia Financial Group, Inc. ("Insignia"), owns the
capital stock of the Managing General Partner with certain affiliates of
Insignia providing property management and asset management services to the
Partnership.
The following payments were made to Insignia and its affiliates in 1997 (in
thousands):
<TABLE>
<S> <C>
Property management fees.................................... $269
Reimbursement for services of affiliates.................... 25
</TABLE>
For the period from January 1, 1997 to August 31, 1997, the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the Managing General Partner. An affiliate of
F-13
<PAGE> 908
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Managing General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the current year's master policy. The current agent assumed the
financial obligations to the affiliate of the Managing General Partner, who
received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums that accrued to the benefit of the affiliate of
the Managing General Partner by virtue of the agent's obligations was not
significant.
NOTE F -- SALE OF PROPERTY
On January 21, 1997, the Partnership sold Heritage Park Las Vegas to an
unaffiliated party. The buyer assumed the mortgage note payable which had an
outstanding balance of approximately $5,027,000. The Partnership received net
proceeds of approximately $907,000 after payment of closing costs. This
disposition resulted in a gain of approximately $1,532,000.
NOTE G -- YEAR 2000 (UNAUDITED)
The Partnership is dependent upon Insignia for management and
administrative services. Insignia has completed an assessment and will have to
modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter (the
"Year 2000 Issue"). The project is estimated to be completed not later than
December 31, 1998, which is prior to any anticipated impact on its operating
systems. Insignia believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Partnership.
NOTE H -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
(IN THOUSANDS)
<TABLE>
<CAPTION>
BUILDINGS
AND RELATED COST CAPITALIZED
PERSONAL SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION
- ----------- ------------ ------ ----------- ----------------
<S> <C> <C> <C> <C>
Anaheim....................................... $ 8,085 $2,408 $ 6,946 $ 127
Escondido..................................... 8,000 749 8,064 (1,019)
Livermore..................................... 7,270 0 8,353 138
Villa Serena.................................. 5,339 1,149 6,510 (234)
------- ------ ------- -------
Totals.............................. $28,694 $4,306 $29,873 $ (988)
======= ====== ======= =======
</TABLE>
F-14
<PAGE> 909
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
GROSS AMOUNT AT WHICH CARRIED
(IN THOUSANDS)
<TABLE>
<CAPTION>
BUILDINGS
AND RELATED
PERSONAL ACCUMULATED DATE DEPRECIABLE
DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS
- ----------- ------ ----------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anaheim...................... $2,408 $ 7,073 $ 9,481 $ 3,058 1986 5-25
Escondido.................... 650 7,045 7,695 3,317 1986 5-25
Livermore.................... 0 8,491 8,491 3,250 1986 5-25
Villa Serena................. 1,096 6,276 7,372 2,819 1986 5-25
------ ------- ------- ------- ---- ----
Woodmere..................... $4,154 $28,885 $33,039 $12,444
====== ======= ======= =======
</TABLE>
Reconciliation of "Investment Property and Accumulated Depreciation" (in
thousands):
<TABLE>
<S> <C>
INVESTMENT PROPERTY
Balance at beginning of year................................ $39,475
Property disposals.......................................... (6,520)
Property improvements....................................... 84
-------
Balance at end of year...................................... $33,039
=======
ACCUMULATED DEPRECIATION
Balance at beginning of year................................ $13,639
Property disposals.......................................... (2,117)
Additions charged to expense................................ 922
-------
Balance at end of year...................................... $12,444
=======
</TABLE>
The aggregate cost of the investment property for Federal income tax
purposes at December 31, 1997 is $33,849,000. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1997 is $23,684,000.
NOTE I EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-15
<PAGE> 910
REPORT OF INDEPENDENT AUDITORS
The Partners
Calmark Heritage Park II Limited Partnership
We have audited the accompanying balance sheet of Calmark Heritage Park II
Limited Partnership as of December 31, 1996, and the related statements of
operations, changes in partners' deficit and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Calmark Heritage Park II
Limited Partnership at December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Calmark Heritage Park II Limited Partnership will continue as a going concern.
As more fully described in Note A, the Partnership has incurred recurring
operating losses and is currently in default on substantially all of its
long-term debt. These conditions raise substantial doubt about the Partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
March 19, 1997
Greenville, South Carolina
F-16
<PAGE> 911
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 222
Restricted -- tenant security deposits.................... 135
--------
$ 357
Accounts receivable......................................... 2
Cash collateral accounts (Note C)........................... 1,517
Bond fund (Note Q........................................... 75
Other restricted escrows.................................... 663
Escrow deposits for taxes and insurance..................... 169
Other assets................................................ 61
Loan costs, net of accumulated amortization of $479 (Note
B)........................................................ 940
Investment properties (Notes B, C and D):
Land...................................................... 5,309
Buildings and related personal property................... 34,164
--------
39,473
Less accumulated depreciation............................. (13,639) 25,834
-------- -------
$29,618
=======
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 171
Accrued and sundry liabilities:
Tenant security deposits............................... $ 134
Interest............................................... 2,466
Other.................................................. 47 2,647
--------
Long-term debt, including $29,286,000 in default at
December 31, 1996 (Note C)............................. 34,399
-------
37,217
Partners' deficit:
General Partners.......................................... (76)
Limited Partners.......................................... (7,523) (7,599)
-------- -------
$29,618
=======
</TABLE>
See accompanying notes.
F-17
<PAGE> 912
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $5,965
Other income.............................................. 177
------
6,142
Expenses:
Operating................................................. $ 667
Administrative............................................ 476
Interest.................................................. 2,404
Letter of credit fees..................................... 245
Depreciation and amortization............................. 1,196
Advertising and rental incentives......................... 80
Property taxes............................................ 443
Utilities................................................. 408
Management fees (Note E).................................. 333
Maintenance............................................... 463
Ground lease (Note D)..................................... 60
Insurance (Note E)........................................ 128
6,903
------
Loss before disposal of property............................ (761)
Gain on foreclosure of investment property (Note C)......... 1,004
------
Net income.................................................. $ 243
======
</TABLE>
See accompanying notes.
F-18
<PAGE> 913
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- -------
<S> <C> <C> <C>
Partners' deficit at December 31, 1995...................... $(78) $(7,764) $(7,842)
Net income................................................ 2 241 243
---- ------- -------
Partners' deficit at December 31, 1996...................... $(76) $(7,523) $(7,599)
==== ======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE> 914
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating activities
Net income................................................ $ 243
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 1,116
Amortization........................................... 80
Gain on foreclosure of investment property............. (1,004)
Changes in operating assets and liabilities:
Restricted cash...................................... 8
Accounts receivable.................................. 7
Other assets......................................... 25
Escrow deposits for taxes and insurance.............. (27)
Accounts payable..................................... 101
Accrued interest..................................... 455
Tenant security deposit liabilities.................. (1)
Other accrued and sundry liabilities................. (7)
-------
Net cash provided by operating activities......... 996
Investing activities
Property improvements and replacements.................... (136)
Deposits to cash collateral accounts...................... (254)
Deposits to bond fund..................................... (162)
Receipts from bond fund................................... 300
Receipts from other restricted escrows.................... 209
Deposits to other restricted escrows...................... (485)
-------
Net cash used in investing activities............. (528)
Financing activities
Payments on long-term debt................................ (401)
-------
Net increase in cash and cash equivalents......... 67
Cash and cash equivalents at December 31, 1995............ 155
-------
Cash and cash equivalents at December 31, 1996............ $ 222
=======
Supplemental disclosure of cash flow information
Cash paid for interest expense.............................. $ 1,905
=======
</TABLE>
F-20
<PAGE> 915
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Foreclosure
During 1996, Heritage Park Norco was foreclosed upon by Praedium
Chesapeake, LLC. In connection with this foreclosure, the following balance
sheet accounts were adjusted by the gain on the foreclosure of the property:
<TABLE>
<S> <C>
Other assets............................................. $ (1)
Investment properties.................................... (1,565)
Tenant security deposits................................. 7
Interest................................................. 344
Other liabilities........................................ 61
Long-term debt........................................... 2,158
-------
Gain on foreclosure of investment property............... $ 1,004
=======
</TABLE>
See accompanying notes.
F-21
<PAGE> 916
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A -- GOING CONCERN
The accompanying financial statements have-been prepared assuming Calmark
Heritage Park II Limited Partnership ("the Partnership") will continue as a
going concern.
The Partnership is currently in default on substantially all of its
long-term debt. The Partnership has also incurred recurring operating losses and
has a partners' deficit at December 31, 1996. These conditions raise substantial
doubt about the Partnership's ability to continue as a going concern.
Management is involved in discussions with its lenders in attempt to
restructure the debt which is in default. The outcome of these discussions is
not presently determinable and the financial statements do not include any
adjustments to reflect the possible future effects on the recover ability and
classification of assets or amounts and classification of liabilities that may
result from this uncertainty.
NOTE B -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The Partnership (formerly known as Shearson/Calmark Heritage Park II, Ltd.,
a California Limited Partnership) was formed in November 1986 to acquire and
operate senior citizens apartment communities located in California and Nevada.
The Partnership will terminate on March 9, 2011 unless terminated sooner by
vote of the Limited Partners or other dissolution. Other dissolution may occur
upon the bankruptcy or dissolution of a General Partner unless the Partners
elect to continue the Partnership.
The General Partners of the Partnership are Heritage Park Investors, Inc.,
a California corporation (the Managing General Partner), Calmark Investors,
Ltd., a California Limited Partnership (the Associate General Partner), and
Heritage Park II, Inc., a Delaware corporation (the Lehman General Partner).
Allocations to Partners
Income and Losses
Income from operations is allocated pro rata to the General Partners and to
the Limited Partners (collectively the "Partners") as a class in the same ratio
as cash distributions are made to such partners (see below). In the event that
no cash distributions are made to the Partners during any year, income from
operations shall be allocated 1% to the General Partners and 99% to the Limited
Partners.
Losses from operations are generally allocated 1% to the General Partners
and 99% to the Limited Partners. Income from disposition or partial disposition
of Partnership property and income upon termination and liquidation of the
Partnership will be allocated as follows:
a. To Partners with negative adjusted capital account balances (as
defined), after accounting for distributions described below, in
proportion to their negative adjusted capital account balances.
b. Any remaining income will be allocated 5% to the Lehman General
Partner, 25% to the Managing General Partner and Associate General
Partner and 70% to the Limited Partners.
Losses from disposition or partial disposition of the Partnership property
and all losses upon the termination and liquidation of the Partnership shall be
allocated as follows:
a. To all Partners with positive adjusted capital balances in
proportion to their adjusted capital balances.
F-22
<PAGE> 917
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
b. Any remaining losses will be allocated 1% to the General Partners
and 99% to the Limited Partners.
Cash Distributions
Cash from operations is to be distributed, when available, not less often
than quarterly and not later than ninety days after the end of each fiscal
quarter of the Partnership in the following order of priority:
a. 1% collectively to the Managing General Partner and the Associate
General Partner and 99% to the Limited Partners as a class until
such time as the Limited Partners have received in the aggregate
an amount equal to a 10% per annum cumulative (but not compounded)
return on their adjusted interest investment (as defined).
b. The remainder is allocated 25% collectively to the Managing
General Partner and the Associate General Partner, 5% to the
Lehman General Partner and 70% to the Limited Partners as a class.
In general, any proceeds remaining after the sale of the properties and
dissolution of the Partner ship shall be distributed to the Partners in
accordance with their capital accounts.
Investment Properties
The Partnership accounts for its investment properties under FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount.
Depreciation
Depreciation is provided by the straight-line method over the estimated
lives of the investment properties and related personal property.
Loan Costs
Loan costs are amortized on a straight-line basis over the lives of the
respective debt.
Cash and Cash Equivalents -- Unrestricted Cash
The Partnership considers only unrestricted cash to be cash. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Restricted Cash -- Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease. Deposits are refunded when the tenant vacates the
apartment if there has been no damage.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
F-23
<PAGE> 918
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Under provisions of the Internal Revenue Code and applicable state revenue
and taxation codes, partnerships are generally not subject to income taxes. For
tax purposes, any income or loss realized is that of the individual partners,
not the Partnership.
Advertising
The Partnership expenses the costs of advertising as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE C -- LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following (in
thousands):
<TABLE>
<S> <C>
Indebtedness under three 1992 Series A Bond Issues to
various housing authorities bearing interest at variable
rates, secured by first deeds of trust on the Anaheim,
Escondido, and Livermore properties. Interest payments to
the trustee are required semi-annually; the rate is reset
every seven days and is to be that which would produce a
par bid if the bonds were sold on the first day of the
next seven-day reset period. The average annual interest
rates for 1996 was 3.3%. Two of the bond issues mature in
2007 and one in 2022; they can be redeemed prior to
maturity without penalty, subject to certain provisions... $22,605
Mortgage notes payable to various mortgage companies bearing
interest at rates ranging from 9.78% to 11.125% per annum,
secured by first deeds of trust on the Villa Serena and
Las Vegas properties. These notes require monthly payments
of principal and interest ranging from approximately
$47,000 to $50,000, with balloon payments of $5,009,000
(Las Vegas) due in July 1997 and $3,823,999 (Villa Serena)
due in November 2007...................................... 10,144
Subordinated mortgage notes payable on the Anaheim,
Livermore and Escondido properties. The Anaheim note in
the amount of $600,000 bears interest at 10.525% and
requires monthly interest payments of approximately $4,100
All unpaid interest plus the principal amount is due in
January 1997. The Livermore note in the amount of $100,000
bears interest at 5% per annum and the interest and
principal amounts are due in 2084. The Escondido note in
the amount of $950,000 bears interest at 12% per annum,
with monthly payments of 25% of net cash flow as defined,
applied first to unpaid interest and then to principal;
any remaining unpaid principal and interest amounts are
due in January 1997....................................... 1,650
-------
$34,399
=======
</TABLE>
As disclosed in Note A, the Partnership is currently in default on the
Series A Bond Issues.
The Partnership has irrevocable letters of credit with First Interstate
Bank in the amounts of $8,554,000 (Anaheim), $7,347,000 (Escondido) and
$7,668,000 (Livermore), respectively. These letters of credit are additional
security for the 1992 Series A Bond Issues, and are secured by second deeds of
trust on the Anaheim, Escondido and Livermore properties. The Partnership is
required to pay monthly servicing fees of
F-24
<PAGE> 919
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
approximately 1% per annum, based on the out standing amounts. The Partnership
also has a standby letter of credit in the amount of $8,980,000 which is
additional security for the Anaheim letter of credit.
The Partnership is required to fund a Cash Collateral Account and Debt
Service Reserve Account, based on monthly net cash flow as defined, from these
three properties, up to a maxi mum of $1,200,000 and $400,000, respectively. The
Debt Service Reserve Account is to be funded from monthly net cash flow after
the Cash Collateral Account has been fully funded. These Accounts serve as
additional collateral for the bonds. At December 31, 1996, the balances in the
Cash Collateral Account and Debt Service Reserve were $1,404,000 and $-0-,
respectively.
The Partnership has a money market account which is restricted as
additional collateral for the Las Vegas mortgage note payable. The balance in
this cash collateral account at December 31, 1996 was $113,000.
The debt encumbering Las Vegas Apartments matured in April 1996. The
Partnership negotiated with the lender an extension on the debt through July
1997. The property was subsequently sold in January 1997 to Heritage Park
Associates, LLC. See Note F concerning this sale.
The mortgage note payable on the Las Vegas property and the subordinated
mortgage notes payable on the Anaheim, Escondido, and Livermore properties are
in default at December 31, 1996, due to cross default provisions on the Bonds.
In addition, the subordinated mortgage notes payable on the Anaheim and
Escondido properties were extended from their original maturity date of January
1, 1997 to February 1, 1997 (Anaheim) and March 1, 1997 (Escondido). The
Partnership was unable to pay off the debt at the extended maturity dates which
caused an additional event of default on this debt.
In July 1996, Praedium Chesapeake, LLC executed a non-contested foreclosure
on the Norco property. The $2,158,000 mortgage note payable had been in default
since January 1995. As a result of the foreclosure, the mortgage note payable
was satisfied resulting in a gain to the Partnership of $1,004,000.
Principal maturities of long-term debt at December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
1997 (including $29,286 in default)...................... $29,355
1998..................................................... 77
1999..................................................... 84
2000..................................................... 93
2001..................................................... 103
Thereafter............................................... 4,687
-------
$34,399
=======
</TABLE>
NOTE D -- GROUND LEASE
The Livermore property is subject to a ground lease that expires in
November 2084. The lease provides for rental payments of $5,000 per month. In
addition, the Partnership is required to pay annually the difference between the
minimum monthly rent described above and 4 1/2% of gross rental income from the
Livermore property for the preceding 12 months.
F-25
<PAGE> 920
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments at December 31, 1996 are summarized as
follows (in thousands):
<TABLE>
<S> <C>
1997...................................................... $ 60
1998...................................................... 60
1999...................................................... 60
2000...................................................... 60
2001...................................................... 60
Thereafter................................................ 4,970
------
$5,270
======
</TABLE>
NOTE E -- TRANSACTIONS WITH AFFILIATED PARTIES
An affiliate of Insignia Financial Group, Inc. ("Insignia"), owns the
capital stock of the Managing General Partner with certain affiliates of
Insignia providing property management and asset management services to the
Partnership.
The following payments were made to Insignia and its affiliates in 1996 (in
thousands):
<TABLE>
<S> <C>
Property management fees.................................... $333
Reimbursement for services of affiliates.................... 31
</TABLE>
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the Managing General Partner. An affiliate
of the Managing General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Managing General
Partner, who receives payments on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Managing General Partner by virtue of the agent's obligations is not
significant.
NOTE F -- SUBSEQUENT EVENT -- SALE OF PROPERTY
On January 21, 1997, the Partnership sold Heritage Park Las Vegas to an
unaffiliated party. The buyer assumed the mortgage note payable which had an
outstanding balance of approximately $5,027,000. The Partnership received net
proceeds of approximately $900,000 after payment of closing costs. This
disposition resulted in a gain of approximately $1,500,000.
NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-26
<PAGE> 921
REPORT OF INDEPENDENT AUDITORS
The Partners
Calmark Heritage Park II Limited Partnership
We have audited the accompanying balance sheet of Calmark Heritage Park II
Limited Partnership as of December 31, 1995, and the related statements of
operations, changes in partners' deficit and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Calmark Heritage Park II
Limited Partnership at December 31, 1995, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
February 29, 1996
Greenville, South Carolina
F-27
<PAGE> 922
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Cash:
Unrestricted.............................................. $ 154,655
Restricted -- tenant security deposits.................... 143,474 $ 298,129
-----------
Accounts receivable......................................... 9,009
Cash collateral accounts (Note 2)........................... 1,263,195
Bond fund (Note 2).......................................... 212,704
Other restricted escrows.................................... 387,235
Escrow deposits for taxes and insurance..................... 141,780
Other assets................................................ 87,252
Loan costs, net of accumulated amortization of $510,321
(Note 1).................................................. 1,019,534
Investment properties (Notes 1, 2 and 3):
Land...................................................... 5,308,951
Buildings and related personal property................... 36,757,328
-----------
42,066,279
Less accumulated depreciation............................. (13,687,276) 28,379,003
----------- -----------
$31,797,841
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 70,028
Accrued and sundry liabilities:
Tenant security deposits............................... $ 142,808
Interest............................................... 2,355,072
Unearned rental collections............................ 39,036
Other.................................................. 75,530 2,612,446
-----------
Long-term debt (Note 2)................................... 36,957,711
-----------
39,640,185
Partners' deficit:
General Partners.......................................... (78,423)
Limited Partners.......................................... (7,763,921) (7,842,344)
----------- -----------
$31,797,841
===========
</TABLE>
See accompanying notes.
F-28
<PAGE> 923
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $6,079,925
Other income.............................................. 193,029
----------
6,272,954
Expenses:
Operating................................................. $ 692,714
Administrative............................................ 313,397
Interest.................................................. 2,635,984
Letter of credit fees..................................... 299,941
Depreciation and amortization............................. 1,254,087
Advertising and rental incentives......................... 71,119
Property taxes............................................ 488,219
Utilities................................................. 411,387
Management fees (Note 4).................................. 334,527
Maintenance............................................... 486,330
Ground lease (Note 3)..................................... 95,000
Insurance (Note 4)........................................ 118,881 7,201,586
---------- ----------
Net loss.......................................... $ (928,632)
==========
</TABLE>
See accompanying notes.
F-29
<PAGE> 924
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' deficit at December 31, 1994.............. $(69,137) $(6,844,575) $(6,913,712)
Net loss.......................................... (9,286) (919,346) (928,632)
-------- ----------- -----------
Partners' deficit at December 31, 1995.............. $(78,423) $(7,763,921) $(7,842,344)
======== =========== ===========
</TABLE>
See accompanying notes.
F-30
<PAGE> 925
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Operating activities
Net loss.................................................. $ (928,632)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 1,123,616
Amortization........................................... 130,471
Changes in operating assets and liabilities:
Restricted cash...................................... (2,257)
Accounts receivable.................................. 29,997
Other assets......................................... (9,619)
Escrow deposits for taxes and insurance.............. 33,275
Accounts payable..................................... (71,074)
Accrued interest..................................... 561,874
Tenant security deposits............................. (1,998)
Unearned rental collections.......................... (55,563)
Other accrued and sundry liabilities................. 37,981
----------
Net cash provided by operating activities......... 848,071
Investing activities
Property improvements and replacements.................... (178,322)
Deposits to cash collateral accounts...................... (251,942)
Deposits to bond fund..................................... (295,686)
Receipts from bond fund................................... 300,000
Receipts from other restricted escrows.................... 541,927
Deposits to other restricted escrows...................... (578,476)
----------
Net cash used in investing activities............. (462,499)
Financing activities
Payments on long-term debt.................................. (391,441)
----------
Net cash used in financing activities............. (391,441)
----------
Net decrease in cash.............................. (5,869)
Cash at December 31, 1994................................... 160,524
----------
Cash at December 31, 1995................................... $ 154,655
==========
Supplemental disclosure of cash flow information
Cash paid for interest expense.............................. $2,074,110
==========
</TABLE>
See accompanying notes.
F-31
<PAGE> 926
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Calmark Heritage Park II Limited Partnership (formerly known as
Shearson/Calmark Heritage Park II, Ltd., a California Limited Partnership) ("the
Partnership"), was formed in November 1986 to acquire and operate senior
citizens apartment communities located in California and Nevada.
The Partnership will terminate on March 9, 2011 unless terminated sooner by
vote of the Limited Partners or other dissolution. Other dissolution may occur
upon the bankruptcy or dissolution of a General Partner unless the Partners
elect to continue the Partnership.
The General Partners of the Partnership are Heritage Park Investors, Inc.,
a California corporation (the Managing General Partner), Calmark Investors,
Ltd., a California Limited Partnership (the Associate General Partner), and
Heritage Park II, Inc., a Delaware corporation (the Lehman General Partner).
Allocations to Partners
Income and Losses
Income from operations is allocated pro rata to the General Partners and to
the Limited Partners as a class in the same ratio as cash distributions are made
to such partners (see below). In the event that no cash distributions are made
to the Partners during any year, income from operations shall be allocated 1% to
the General Partners and 99% to the Limited Partners.
Losses from operations are generally allocated 1% to the General Partners
and 99% to the Limited Partners. Income from disposition or partial disposition
of Partnership property and income upon termination and liquidation of the
Partnership will be allocated as follows:
a. To Partners with negative adjusted capital account balances (as
defined), after accounting for distributions described below, in
proportion to their negative adjusted capital account balances.
b. Any remaining income will be allocated 5% to the Lehman General
Partner, 25% to the Managing General Partner and Associate General
Partner and 70% to the Limited Partners.
Losses from disposition or partial disposition of the Partnership property
and all losses upon the termination and liquidation of the Partnership shall be
allocated as follows:
a. To all Partners with positive adjusted capital balances in
proportion to their adjusted capital balances.
b. Any remaining losses will be allocated 1% to the General Partners
and 99% to the Limited Partners.
Cash Distributions
Cash from operations is to be distributed, when available, not less often
than quarterly and not later than ninety days after the end of each fiscal
quarter of the Partnership in the following order of priority:
a. 1% collectively to the Managing General Partner and the Associate
General Partner and 99% to the Limited Partners as a class until
such time as the Limited Partners have received in the aggregate
an amount equal to a 10% per annum cumulative (but not compounded)
return on their adjusted interest investment (as defined).
b. The remainder is allocated 25% collectively to the Managing
General Partner and the Associate General Partner, 5% to the
Lehman General Partner and 70% to the Limited Partners as a class.
F-32
<PAGE> 927
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In general, any proceeds remaining after the sale of the properties and
dissolution of the Partnership shall be distributed to the Partners in
accordance with their capital accounts.
Investment Properties
During 1995, the Partnership adopted FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of ", which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The effect of adoption was not material.
Depreciation
Depreciation is provided by the straight-line method over the estimated
lives of the investment properties and related personal property.
Loan Costs
Loan costs are amortized on a straight-line basis over the lives of the
respective debt.
Cash
The Partnership considers only unrestricted cash to be cash. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Restricted Cash -- Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease. Deposits are refunded when the tenant vacates the
apartment if there has been no damage.
Fair Value
In 1995, the Partnership implemented Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments", which
requires disclosure of fair value information about financial instruments for
which it is practicable to estimate that value. The carrying amount of the
Partnership's cash approximates fair value. The Partnership estimates the fair
value of its fixed rate mortgages by discounted cash flow analysis, based on
estimated borrowing rates currently available to the Partnership. The carrying
amounts of bonds payable approximate fair value due to frequent re-pricing (Note
2).
Income Taxes
Under provisions of the Internal Revenue Code and applicable state revenue
and taxation codes, partnerships are generally not subject to income taxes. For
tax purposes, any income or loss realized is that of the individual partners,
not the Partnership.
Advertising
The Partnership expenses the costs of advertising as incurred.
F-33
<PAGE> 928
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LONG-TERM DEBT
Long-term debt at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Indebtedness under three 1992 Series A Bond Issues to
various housing authorities bearing interest at variable
rates, secured by first deeds of trust on the Anaheim,
Escondido, and Livermore properties. Interest payments to
the trustee are required semi-annually; the rate is reset
every seven days and is to be that which would produce a
par bid if the bonds were sold on the first day of the
next seven-day reset period. The average annual interest
rates for 1995 ranged from 2.55% to 5.75%. Two of the bond
issues mature in 2007 and one in 2022; they can be
redeemed prior to maturity without penalty, subject to
certain provisions........................................ $22,905,000
Mortgage notes payable to various mortgage companies bearing
interest at rates ranging from 9.78% to 11.125% per annum,
secured by first deeds of trust on the Villa Serena, Las
Vegas and Norco properties. These notes require monthly
payments of principal and interest ranging from
approximately $21,000 to $50,000, with balloon payments of
$5,059,160 (Las Vegas) and $2,140,414 (Norco) due in April
1996 and $3,823,999 (Villa Serena) due in November 2007... 12,402,711
Subordinated mortgage notes payable on the Anaheim,
Livermore and Escondido properties. The Anaheim note in
the amount of $600,000 bears interest at 10.525% and
requires monthly interest payments of approximately
$4,100. All unpaid interest plus the principal amount is
due in 1997. The Livermore note in the amount of $100,000
bears interest at 5% per annum and the interest and
principal amounts are due in 2084. The Escondido note in
the amount of $950,000 bears interest at 12% per annum,
with monthly payments of 25% of net cash flow as defined,
applied first to unpaid interest and then to, principal;
any remaining unpaid principal and interest amounts are
due in 1997............................................... 1,650,000
-----------
$36,957,711
===========
</TABLE>
The estimated fair values of the Partnership's aggregate debt is
$37,840,000, which represents a general approximation of possible value and is
not necessarily indicative of the amounts the Partnership may pay in actual
market transactions.
The Partnership is required to make semi-annual payments to a Bond Fund
which can be used to redeem the 1992 Series A Bond Issues. Under the
requirements of the reimbursement agreement, the Partnership is required to make
payments of $300,000 (1996), $315,000 (1997), $335,000 (1998), $365,000 (1999)
and $390,000 (2000) to the Bond Fund which is held by the Trustee, First
Interstate Bank. During 1995, the Partnership redeemed bonds in the amount of
$300,000 with funds held in the Bond Fund.
The Partnership has irrevocable letters of credit with First Interstate
Bank in the amounts of $8,979,959 (Anaheim), $7,546,850 (Escondido) and
$7,668,410 (Livermore), respectively. These letters of credit are additional
security for the 1992 Series A Bond Issues, and are secured by second deeds of
trust on the Anaheim, Escondido and Livermore properties. The Partnership is
required to pay monthly servicing fees of
F-34
<PAGE> 929
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
approximately 1% per annum, based on the outstanding amounts. The Partnership
also has a standby letter of credit in the amount of $8,979,959 which is
additional security for the Anaheim letter of credit.
The Partnership is required to fund a Cash Collateral Account and Debt
Service Reserve Account, based on monthly net cash flow as defined, from these
three properties, up to a maxi mum of $1,200,000 and $400,000, respectively. The
Debt Service Reserve Account is to be funded from monthly net cash flow after
the Cash Collateral Account has been fully funded. These Accounts serve as
additional collateral for the bonds. At December 31, 1995, the balances in the
Cash Collateral Account and Debt Service Reserve were $1,153,788 and $-0-,
respectively.
The Partnership has a money market account which is restricted as
additional collateral for the Las Vegas mortgage note payable. The balance in
this cash collateral account at December 31, 1995 was $109,407.
The debt encumbering Las Vegas Apartments matures in April 1996. The
Partnership is currently negotiating a sale of the property with a potential
buyer, however, there is no assurance that the negotiations will ultimately be
successful.
In January 1995, the Partnership went into default on the mortgage note
payable for Norco due to the Partnership only paying one-half of the required
monthly mortgage payment. The Partner ship made one-half of the required monthly
mortgage payment through April 1995, after which the Partnership made no
payments. As a result of the default, the Partnership is incurring default
interest on the mortgage note balance at the time of the event of default at
13.125%, or 2% above the stated rate. In December 1995, the rights of the
mortgage note payable were assigned to Praedium Chesapeake, LLC ("Praedium"). In
January 1996, Praedium served a notice of default and entered into an agreement
with the Partnership to execute a non-contested foreclosure on the Norco
property. The agreement provides for monthly excess cash flow payments until the
fore closure is complete. The balance outstanding on this mortgage note payable
was $2,158,334 at December 31, 1995.
Principal maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 (including debt in default of $2,158,344)........ $ 7,290,464
1997.................................................. 1,619,513
1998.................................................. 76,624
1999.................................................. 84,463
2000.................................................. 93,104
Thereafter............................................ 27,793,543
-----------
$36,957,711
===========
</TABLE>
3. GROUND LEASES
The Livermore property is subject to a ground lease that expires in
November 2084. The lease provides for rental payments of $5,000 per month. In
addition, the Partnership is required to pay annually the difference between the
minimum monthly rent described above and 4 1/2% of gross rental income from the
Livermore property for the preceding 12 months.
The Norco property is subject to a ground lease which expires in June 2051.
The lease provides for annual rent of $35,000 through June 1996 at which time
the rent is subject to an increase or decrease based on changes in the consumer
price index within certain limitations. The rent is again subject to adjustment
on every fifth anniversary date thereafter, through the year 2051.
F-35
<PAGE> 930
CALMARK HERITAGE PARK II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Partnership ceased making payments on the Norco ground
lease, which constitutes an event of default. Ground lease payments totaling
$20,417 are accrued and included in other liabilities at December 31, 1995.
Future minimum lease payments at December 31, 1995 are summarized as
follows:
<TABLE>
<S> <C>
1996................................................... $ 95,000
1997................................................... 95,000
1998................................................... 95,000
1999................................................... 95,000
2000................................................... 95,000
Thereafter............................................. 6,825,000
----------
$7,300,000
==========
</TABLE>
4. TRANSACTIONS WITH AFFILIATED PARTIES
An affiliate of Insignia Financial Group, Inc. ("Insignia"), owns the
capital stock of the Managing General Partner with certain affiliates of
Insignia providing property management and asset management services to the
Partnership.
The following payments were made to Insignia and its affiliates in 1995:
<TABLE>
<S> <C>
Property management fees................................ $334,527
Reimbursement for services of affiliates................ 46,404
</TABLE>
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the Managing General Partner. An affiliate
of the Managing General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Managing General
Partner, who receives payments on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Managing General Partner by virtue of the agent's obligations is not
significant.
NOTE 5 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-36
<PAGE> 931
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 932
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 933
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 934
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
CATAWBA CLUB ASSOCIATES, L.P.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 935
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-18
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP Units.. S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P. .......................... S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P. ..... S-22
Summary Financial Information of Catawba Club
Associates, L.P. .......................... S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-62
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
CONFLICTS OF INTEREST.......................... S-71
Conflicts of Interest with Respect to the
Offer...................................... S-71
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-71
Competition Among Properties................. S-71
Features Discouraging Potential Takeovers.... S-71
Future Exchange Offers....................... S-71
YOUR PARTNERSHIP............................... S-72
General...................................... S-72
Your Partnership and its Property............ S-72
</TABLE>
i
<PAGE> 936
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-72
Investment Objectives and Policies; Sale or
Financing of Investments................... S-72
Capital Replacement.......................... S-73
Borrowing Policies........................... S-73
Competition.................................. S-73
Legal Proceedings............................ S-73
Selected Financial Information............... S-73
Balance Sheet Data......................... S-74
Statement of Operations Data............... S-74
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-75
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-77
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-78
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-79
LEGAL MATTERS.................................. S-79
EXPERTS........................................ S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
</TABLE>
ii
<PAGE> 937
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Catawba Club Associates, L.P. For each unit that you tender, you may choose
to receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
S-1
<PAGE> 938
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
S-2
<PAGE> 939
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $ per unit for the six months
ended June 30, 1998 (equivalent to $ on an annual basis). We will pay
fixed quarterly distributions of $ per unit on the Tax-Deferral
% Preferred OP Units before any distributions are paid to holders of
Tax-Deferral Common OP Units. We pay quarterly distributions on the
Tax-Deferral Common OP Units based on our funds from operations for that
quarter. For the six months ended June 30, 1998, we paid distributions of
$1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on
an annual basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units or
distributions of $ per year on the number of Tax-Deferral Common
OP Units that you would receive in an exchange for each of your
partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
S-3
<PAGE> 940
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
S-4
<PAGE> 941
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
S-5
<PAGE> 942
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
S-6
<PAGE> 943
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
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activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not any own
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership has required funding from its partners. Continuation of its
operations is dependent on additional funding from partners or from other
sources. Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If
your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. In addition, continuation of your partnership without the
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offer would deny you and your partners the benefits that your general
partner expects to result from the offer. For example, a partner of your
partnership would have no opportunity for liquidity unless he were to sell
his units in a private transaction. Any such sale would likely be at a very
substantial discount from the partner's pro rata share of the fair market
value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
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TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
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Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
S-15
<PAGE> 952
exchange of your units for cash and OP Units will be treated, for Federal
income tax purposes, as a partial sale of such units for cash and as a partial
tax-free contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
</TABLE>
S-16
<PAGE> 953
<TABLE>
<S> <C>
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
S-17
<PAGE> 954
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner of your partnership but may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $56,001 in 1996, $60,499 in 1997 and $28,649 for the
first six months of 1998. We have no current intention of changing the fee
structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
S-18
<PAGE> 955
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Catawba Club Associates, L.P. is a
Delaware limited partnership which was formed on May 28, 1985 for the purpose of
owning and operating a single apartment property located in Columbus, Ohio,
known as "Catawba Club Apartments". In 1985, it completed a private placement of
units that raised net proceeds of approximately $1,996,400. Catawba Club
Apartments consists of 186 apartment units. Your partnership has no employees.
Property Management. Since December 1991, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2008, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $3,661,438, payable to Marine Midland,
Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage
debt is due in November 2002. Your partnership also has a second mortgage note
outstanding of $130,106, on the same terms as the first mortgage note. Your
partnership's agreement of limited partnership also allows your general partner
to lend funds to your partnership. Currently, the general partner of your
partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 956
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 957
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 958
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 959
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 960
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 961
SUMMARY FINANCIAL INFORMATION OF CATAWBA CLUB ASSOCIATES, L.P.
The summary financial information of Catawba Club Associates, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Catawba Club Associates, L.P. for the years ended December 31,
1997 and 1996, 1995 and 1994 is based on audited financial statements. This
information should be read in conjunction with such financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Your Partnership" included
herein. See "Index to Financial Statements."
CATAWBA CLUB ASSOCIATES, L.P.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues................. $ 576,570 $ 601,406 $ 1,195,681 $ 1,137,701 $ 1,081,245 $ 1,088,583 $ 1,064,380
Net Income/(Loss).............. 14,550 105,944 38,586 206 (122,166) (209,062) (267,601)
BALANCE SHEET DATA:
Real estate, net of accumulated
depreciation................. 1,746,833 1,697,460 1,765,989 1,715,436 1,736,084 1,798,934 2,044,623
Total assets................... 2,119,851 2,115,787 2,160,764 2,110,327 2,150,860 2,268,327 2,468,921
Mortgage notes payable,
including accrued interest... 4,355,958 4,125,045 4,096,685 4,179,525 3,841,655 3,910,145 3,972,911
Partners' capital/(deficit).... $(2,413,708) $(2,360,900) $(2,428,258) $(2,466,844) $(2,467,050) $(2,344,884) $(2,135,822)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per Common OP Unit and
historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 0 0
</TABLE>
S-25
<PAGE> 962
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 963
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 964
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to
your units for the six months ended June 30, 1998 were $ per unit
(equivalent to $ on an annualized basis). This is equivalent to
distributions of $ per year on the number of Tax-Deferral % Preferred
OP Units, or distributions of $ per year on the number of Tax-Deferral Common
OP Units, that you would receive in exchange for each of your partnerships
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
S-28
<PAGE> 965
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for
S-29
<PAGE> 966
investment, business, personal or other purposes, at their option. If your
partnership were to sell its assets and liquidate, you and your partners would
not need to rely upon capitalization of income or other valuation methods to
estimate the fair market value of your partnership's assets. Instead, such
assets would be valued through negotiations with prospective purchasers (in many
cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership has required funding from its partners. Continuation of
its operations is dependent on additional funding from partners or from other
sources. Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
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- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, which change, in the sole judgment of the AIMCO Operating
Partnership, is or may be materially adverse to your partnership or the
value of your units to the AIMCO Operating Partnership, or the AIMCO
Operating Partnership shall have become aware of any facts relating to your
partnership, its indebtedness or its operations which, in the sole judgment
of the AIMCO Operating Partnership, has or may have material significance
with respect to the value of your partnership or the value of your units to
the AIMCO Operating Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks
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<PAGE> 975
or other lending institutions, or (viii) in the case of any of the
foregoing existing at the time of the commencement of the offer, in the
sole judgment of the AIMCO Operating Partnership, a material acceleration
or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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<PAGE> 978
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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<PAGE> 979
distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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<PAGE> 980
Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 984
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 985
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
S-49
<PAGE> 986
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 987
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 988
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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<PAGE> 989
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value, the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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<PAGE> 990
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 991
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25, and distributions with respect to your units for
the six months ended June 30, 1998 were $ per unit (equivalent to
$ on an annualized basis). This is equivalent to distributions of
$ per year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common OP
Units, that you would receive in exchange for each of your partnerships
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to
your units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
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Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also
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performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information
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contained in this Prospectus Supplement or that were provided, made
available, or otherwise communicated to Stanger by your partnership, AIMCO, or
the management of the partnership's property. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of your partnership. Stanger relied upon the representations of
your partnership and AIMCO concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, the determination and valuation of non-real
estate assets and liabilities of your partnership, the allocation of your
partnership's net values between the general partner, special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities
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laws. No portion of Stanger's fee is contingent upon consummation of the
offer or the content of Stanger's opinion. Stanger has performed other services
for AIMCO in the past, including: general financial advisory services relating
to a potential acquisition by AIMCO. However, such acquisition was never
completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Delaware law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Catawba Club Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Available Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2008. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to purchase, hold, The purpose of the AIMCO Operating Partnership is to
lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by
Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the
agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as
perform all acts necessary or appropriate in connection amended from time to time, or any successor to such
therewith and reasonably related thereto, including statute) (the "Delaware Limited Partnership Act"),
borrowing money and creating liens. provided that such business is to be conducted in a
manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 30 units for cash and time to the limited partners and to other persons, and
notes to selected persons who fulfill the requirements to admit such other persons as additional limited
set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital
partnership. The capital contribution need not be equal contributions as may be established by the general
for all limited partners and no action or consent is partner in its sole discretion. The net capital
required in connection with the admission of any contribution need not be equal for all OP Unitholders.
additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership The AIMCO Operating Partnership may lend or contribute
specifies certain contracts to be entered into with the funds or other assets to its subsidiaries or other
general partner and its affiliates and the compensation persons in which it has an equity investment, and such
to be paid under such contracts. In addition, the persons may borrow funds from the AIMCO Operating
general partner may loan your partnership such Partnership, on terms and conditions established in the
additional sums as the general partners deems sole and absolute discretion of the general partner. To
appropriate and necessary for the conduct of your the extent consistent with the business purpose of the
partnership's business. Such loans by the general AIMCO Operating Partnership and the permitted
partner or its affiliates will be upon such terms and activities of the general partner, the AIMCO Operating
for such maturities as the general partner deems Partnership may transfer assets to joint ventures,
reasonable and will bear interest at a rate the greater limited liability companies, partnerships,
of 2 1/2% over the base rate then being charged by corporations, business trusts or other business
Third National Bank in Nashville, Tennessee or the entities in which it is or thereby becomes a
actual cost to such lender to borrow such funds and the participant upon such terms and subject to such
terms thereof as to security and other charges or fees conditions consistent with the AIMCO Operating Part-
will be at least as favorable to your partnership as nership Agreement and applicable law as the general
those negotiated by unaffiliated lenders on com- partner, in its sole and absolute discretion, believes
parable loans for the same purpose in the same locale. to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money in the ordinary course of business and restrictions on borrowings, and the general partner has
in connection with certain loans specified in your full power and authority to borrow money on behalf of
partnership's agreement of limited partnership, which the AIMCO Operating Partnership. The AIMCO Operating
includes loans secured by your partnership's property. Partnership has credit agreements that restrict, among
However, except for such loans specified in your part- other things, its ability to incur indebtedness. See
nership's agreement of limited partnership, the limited "Risk Factors -- Risks of Significant Indebtedness" in
partners owning 51% of the outstanding units must the accompanying Prospectus.
approve the mortgaging of all or substantially all of
the assets of your partnership and, in any case, the
general partners may not incur any indebtedness
pursuant to a non-recourse loan if the creditor will
have or acquire, at any time, as a result of the making
of the loan, any direct or indirect interest in the
profits, capital or property of your partnership other
than as a secured creditor.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners to have access to the with a statement of the purpose of such demand and at
current list of the names and addresses of all limited such OP Unitholder's own expense, to obtain a current
partner at the principal office of the general partner list of the name and last known business, residence or
in Tennessee at all reasonable times. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The management and control of your partnership and its All management powers over the business and affairs of
business and affairs rests exclusively with the general the AIMCO Operating Partnership are vested in AIMCO-GP,
partners, which have all the rights and power which may Inc., which is the general partner. No OP Unitholder
be possessed by general partners pursuant to applicable has any right to participate in or exercise control or
law or are necessary, advisable or convenient to the management power over the business and affairs of the
discharge of its duties under your partnership's AIMCO Operating Partnership. The OP Unitholders have
agreement of limited partnership. Limited partners may the right to vote on certain matters described under
not take part in or interfere with conduct or control "Comparison of Ownership of Your Units and AIMCO OP
of the business of your partnership and have no right Units -- Voting Rights" below. The general partner may
or authority to act for or bind your partnership in any not be removed by the OP Unitholders with or without
manner, except that limited partners may exercise the cause.
voting and other rights provided in your partnership's
agreement of limited partnership and under applicable In addition to the powers granted a general partner of
law. a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general
not liable to your partnership or any limited partner partner is not liable to the AIMCO Operating
for any acts or failures to do any act performed by it Partnership for losses sustained, liabilities incurred
in the absence of its willful malfeasance or gross or benefits not derived as a result of errors in
negligence. Your partnership's agreement of limited judgment or mistakes of fact or law of any act or
partnership does not provide for indemnification of the omission if the general partner acted in good faith.
general partner by your partnership for any acts or The AIMCO Operating Partnership Agreement provides for
omissions performed by it. indemnification of AIMCO, or any director or officer of
AIMCO (in its capacity as the previous general partner
of the AIMCO Operating Partnership), the general
partner, any officer or director of general partner or
the AIMCO Operating Partnership and such other persons
as the general partner may designate from and against
all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
S-64
<PAGE> 1001
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner for cause after giving notice to such general affairs of the AIMCO Operating Partnership. The general
partner upon a vote of the limited partners owning at partner may not be removed as general partner of the
least 67% of the outstanding units. A general partner AIMCO Operating Partnership by the OP Unitholders with
may resign with the approval of the limited partners or without cause. Under the AIMCO Operating Partnership
owning at least 51% of the outstanding units upon the Agreement, the general partner may, in its sole
giving of notice to any remaining general partner and discretion, prevent a transferee of an OP Unit from
the limited partners. All the limited partners must becoming a substituted limited partner pursuant to the
approve the election of a substitute general partner. A AIMCO Operating Partnership Agreement. The general
limited partner may not transfer his interests without partner may exercise this right of approval to deter,
the written consent of the general partners which may delay or hamper attempts by persons to acquire a
be withheld at the sole discretion of the general controlling interest in the AIMCO Operating Partner-
partner. ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to add in the AIMCO Operating Partnership Agreement, whereby
representations, duties or obligations of the general the general partner may, without the consent of the OP
partner or its affiliates or surrender any right or Unitholders, amend the AIMCO Operating Partnership
power granted to the general partners or their Agreement, amendments to the AIMCO Operating
affiliates in your partnership's agreement of limited Partnership Agreement require the consent of the
partnership for the benefit of the limited partners; to holders of a majority of the outstanding Common OP
cure any ambiguity; to correct or supplement any Units, excluding AIMCO and certain other limited
provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to
provision provided that the general partner receive an the AIMCO Operating Partnership Agreement may be
opinion of counsel that such amendment does not proposed by the general partner or by holders of a
adversely affect the rights of the limited partners; Majority in Interest. Following such proposal, the
and to admit additional or substitute limited partners. general partner will submit any proposed amendment to
Any other amendments to your partnership's agreement of the OP Unitholders. The general partner will seek the
limited partnership must be approved by the limited written consent of the OP Unitholders on the proposed
partners owning 67% of the units. The general partner amendment or will call a meeting to vote thereon. See
must submit a written statement of the proposed "Description of OP Units -- Amendment of the AIMCO
amendment together with their recommendation as to such Operating Partnership Agreement" in the accompanying
proposed amendment. For the purposes of obtaining the Prospectus.
consent of the limited partners, the general partner
may require responses within a specified time, which
may not be less than 30 days, and failure to respond in
such time will constitute a vote which is consistent
with the general partner's recommendation with respect
to such proposal.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses is set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives no fees for its services as general partner. capacity as general partner of the AIMCO Operating
However, the general partner or certain of its Partnership. In addition, the AIMCO Operating Part-
affiliates may be entitled to compensation for services nership is responsible for all expenses incurred
rendered outside of its capacity as general partner. relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 1002
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, except as provided under applicable law, a negligence, no OP Unitholder has personal liability for
limited partner is not bound by or personally liable the AIMCO Operating Partnership's debts and
for the expenses, liabilities or obligations of your obligations, and liability of the OP Unitholders for
partnership in excess of such limited partners' capital the AIMCO Operating Partnership's debts and obligations
contribution, including any deferred payment to be made is generally limited to the amount of their invest-
by such limited partner for its units, and any ment in the AIMCO Operating Partnership. However, the
mandatory assessments provided for in your limitations on the liability of limited partners for
partnership's agreement of limited partnership which the obligations of a limited partnership have not been
may be levied against those limited partners who do not clearly established in some states. If it were
pay for issued units entirely in cash at the time of determined that the AIMCO Operating Partnership had
issuance. been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must manage and partnership agreement, Delaware law generally requires
control your partnership, and its business and affairs a general partner of a Delaware limited partnership to
to the best of its abilities and must use its best adhere to fiduciary duty standards under which it owes
efforts to carry out the business of your partnership. its limited partners the highest duties of good faith,
The general partner must devote itself to the business fairness and loyalty and which generally prohibit such
of your partnership to the extent that it, in its general partner from taking any action or engaging in
discretion, deems necessary for the efficient carrying any transaction as to which it has a conflict of
on thereof. The general partner must act as a interest. The AIMCO Operating Partnership Agreement
fiduciaries with respect to the safekeeping and use of expressly authorizes the general partner to enter into,
the funds and assets of your partnership. However, the on behalf of the AIMCO Operating Partnership, a right
general partner may engage in whatever activities it of first opportunity arrangement and other conflict
chooses, whether or not it is competitive with your avoidance agreements with various affiliates of the
partnership, without having or incurring any obligation AIMCO Operating Partnership and the general partner, on
to offer any interest in such activities to your such terms as the general partner, in its sole and
partnership or any limited partner. absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 1003
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders
the limited partners owning 51% of Operating Partnership Agreement, have voting rights only with
the outstanding units is necessary the holders of the Preferred OP respect to certain limited matters
to change the nature of your Units will have the same voting such as certain amendments and
partnership's business and approve rights as holders of the Common OP termination of the AIMCO Operating
or disapprove the sale of all or Units. See "Description of OP Partnership Agreement and certain
substantially all of the assets of Units" in the accompanying transactions such as the
your partnership. The consent of Prospectus. So long as any institution of bankruptcy
the holders of at least 67% of the Preferred OP Units are outstand- proceedings, an assignment for the
outstanding units is required to ing, in addition to any other vote benefit of creditors and certain
remove a general partner, amend or consent of partners required by transfers by the general partner of
your partnership's agreement of law or by the AIMCO Operating its interest in the AIMCO Operating
limited partnership Partnership Agree- Part-
</TABLE>
S-67
<PAGE> 1004
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
and to dissolve your partnership ment, the affirmative vote or nership or the admission of a
before its term expires. All consent of holders of at least 50% successor general partner.
limited partners must approve the of the outstanding Preferred OP
election of a substitute general Units will be necessary for Under the AIMCO Operating Partner-
partner. effecting any amendment of any of ship Agreement, the general partner
the provisions of the Partnership has the power to effect the
A general partner may cause the Unit Designation of the Preferred acquisition, sale, transfer,
dissolution of the your partnership OP Units that materially and exchange or other disposition of
by retiring when there are no adversely affects the rights or any assets of the AIMCO Operating
remaining general partners unless, preferences of the holders of the Partnership (including, but not
within ninety days, all of the Preferred OP Units. The creation or limited to, the exercise or grant
limited partners elect a new issuance of any class or series of of any conversion, option,
general partner to continue the partnership units, including, privilege or subscription right or
business of your partnership, in without limitation, any partner- any other right available in
reconstituted form if necessary. ship units that may have rights connection with any assets at any
senior or superior to the Preferred time held by the AIMCO Operating
OP Units, shall not be deemed to Partnership) or the merger,
materially adversely affect the consolidation, reorganization or
rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of the Available Cash $ per Preferred OP Unit; tribute quarterly all, or such
Flow will be made in quarterly provided, however, that at any time portion as the general partner may
installments within 45 days after and from time to time on or after in its sole and absolute discretion
the end of such quarter or at such the fifth anniversary of the issue determine, of Available Cash (as
time or times as the general date of the Preferred OP Units, the defined in the AIMCO Operating
partner deems practical. The AIMCO Operating Partnership may Partnership Agreement) generated by
distributions payable to the adjust the annual distribution rate the AIMCO Operating Partnership
partners are not fixed in amount on the Preferred OP Units to the during such quarter to the general
and depend upon the operating lower of (i) % plus the annual partner, the special limited
results and net sales or interest rate then applicable to partner and the holders of Common
refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date
the disposition of your of five years, and (ii) the annual established by the general partner
partnership's assets. dividend rate on the most recently with respect to such quarter, in
issued AIMCO non-convertible accordance with their respective
preferred stock which ranks on a interests in the AIMCO Operating
parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
S-68
<PAGE> 1005
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and such Preferred OP Units and the OP Units. The AIMCO Operating Part-
transferee will become a Preferred OP Units are not listed nership Agreement restricts the
substituted limited partner if: (1) on any securities exchange. The transferability of the OP Units.
the transfer is not in respect of Preferred OP Units are subject to Until the expiration of one year
fractional units, except in limited restrictions on transfer as set from the date on which an OP
circumstances, (2) the assignor and forth in the AIMCO Operating Unitholder acquired OP Units,
assignee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such
deliver instruments of transfer OP Unitholder may not transfer all
satisfactory to the general Pursuant to the AIMCO Operating or any portion of its OP Units to
partner, (3) the transferor pays a Partnership Agreement, until the any transferee without the consent
transfer fee, (4) the general expiration of one year from the of the general partner, which
partner consents, which consent date on which a holder of Preferred consent may be withheld in its sole
will be withheld if, among other OP Units acquired Preferred OP and absolute discretion. After the
reasons, the transfer violates Units, subject to certain expiration of one year, such OP
Federal or state securities laws or exceptions, such holder of Unitholder has the right to
results in the termination of your Preferred OP Units may not transfer transfer all or any portion of its
partnership for tax purposes and all or any portion of its Pre- OP Units to any person, subject to
(5) the assignor and assignee have ferred OP Units to any transferee the satisfaction of certain
complied with such other conditions without the consent of the general conditions specified in the AIMCO
as set forth in your partner- partner, which consent may be Operating Partnership Agreement,
ship's agreement of limited withheld in its sole and absolute including the general partner's
partnership. discretion. After the expiration of right of first refusal. See
one year, such holders of Preferred "Description of OP Units --
There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the
associated with your units. all or any portion of its Preferred accompanying Prospectus.
OP Units to any person, subject to
the satisfaction of
</TABLE>
S-69
<PAGE> 1006
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
certain conditions specified in the After the first anniversary of
AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-70
<PAGE> 1007
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
[October 1, 1998], when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership property. Additionally, we desire
to purchase units at a low price and you desire to sell units at a high price.
The general partner of your partnership makes no recommendation as to whether
you should tender or refrain from tendering your units. Such conflicts of
interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner from your partnership but may receive
reimbursement for expenses generated in such capacity. The property manager
received management fees of $56,001 in 1996, $60,499 in 1997 and $28,649 for the
first six months of 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the manager of your partnership
property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-71
<PAGE> 1008
YOUR PARTNERSHIP
GENERAL
Catawba Club Associates, L.P. is a Delaware limited partnership which
raised net proceeds of approximately $1,996,400 in 1985 through a private
offering. The promoter for the private offering of your partnership was
Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO
acquired Insignia in October, 1998. There are currently a total of 45 limited
partners of your partnership and a total of 30.5 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the single
apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on May 28, 1985 for the purpose of owning and
operating a single apartment property located in Columbus, Ohio, known as
"Catawba Club Apartments." Your partnership's property consists of 186 apartment
units. There are 51 one-bedroom apartments, 119 two-bedroom apartments and 16
three-bedroom apartments. The total rentable square footage of your
partnership's property is 178,246 square feet. Your partnership's property had
an average occupancy rate of approximately 87.63% in 1996 and 87.63% in 1997.
The average annual rent per apartment unit is approximately $6,029.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1991, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $56,001, $60,499 and $28,649, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2008
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-72
<PAGE> 1009
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $3,661,438, payable to Marine Midland, Bank of America and FNMA,
which bears interest at a rate of 7.60%. The mortgage debt is due in November
2002. Your partnership also has a second mortgage note outstanding of $130,106,
on the same terms as the first mortgage note. A third unsecured promissory note
payable to Jacques-Miller Income Fund II matured in November 1997, which bears
interest at a rate of 12.5%. Your partnership's agreement of limited partnership
also allows the general partner of your partnership to lend funds to your
partnership. Currently, the general partner of your partnership has no loan
outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-73
<PAGE> 1010
Below is selected financial information for Catawba Club Associates, L.P.
taken from the financial statements described above. The 1994 and 1993 amounts
have been derived from the audited financial statements which are not included
in the Prospectus Supplement. See "Index to Financial Statements."
<TABLE>
<CAPTION>
CATAWBA CLUB ASSOCIATES, L.P.
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 50,846 $ 66,396 $ 15,545 $ 37,698 $ 71,242 $ 85,724 $ 85,828
Land & Building.............. 5,250,976 5,083,926 5,211,293 5,043,062 4,955,008 4,820,400 4,789,176
Accumulated Depreciation..... (3,504,143) (3,386,465) (3,445,304) (3,327,626) (3,218,924) (3,021,466) (2,744,553)
Other Assets................. 322,172 351,931 379,230 357,193 343,534 383,669 338,470
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 2,119,851 $ 2,115,787 $ 2,160,764 $ 2,110,327 $ 2,150,860 $ 2,268,327 $ 2,468,921
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS'
DEFICIT
Mortgage & Accrued
Interest................... $ 4,355,958 $ 4,125,045 $ 4,096,685 $ 4,179,525 $ 4,254,261 $ 3,910,145 $ 3,972,911
Other Liabilities............ 177,601 351,642 492,337 397,646 363,649 703,066 631,832
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... 4,533,559 4,476,687 4,589,022 4,577,171 4,617,910 4,613,211 4,604,743
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $(2,413,708) $(2,360,900) $(2,428,258) $(2,466,844) $(2,467,050) $(2,344,884) $(2,135,822)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CATAWBA CLUB ASSOCIATES, L.P.
-----------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Rental Revenue............ $ 544,883 $ 562,195 $ 1,129,839 $ 1,061,661 $ 997,400 $ 1,020,689 $ 992,938
Other Income.............. 31,687 39,211 65,842 76,040 83,845 67,894 71,442
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenue...... $ 576,570 $ 601,406 $ 1,195,681 $ 1,137,701 $ 1,081,245 $ 1,088,583 $ 1,064,380
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Operating Expenses........ $ 284,781 $ 217,629 $ 511,450 $ 490,711 $ 472,940 $ 475,033 $ 480,434
General &
Administrative.......... 22,508 18,773 41,726 42,772 41,487 35,814 56,642
Depreciation.............. 58,839 58,839 117,678 108,702 197,458 289,499 283,346
Interest Expense.......... 145,388 149,676 389,906 398,035 403,893 410,332 423,970
Property Taxes............ 50,504 50,545 96,335 97,275 87,633 86,967 87,589
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Expenses..... 562,020 495,462 1,157,095 1,137,495 1,203,411 1,297,645 1,331,981
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income......... $ 14,550 $ 105,944 $ 38,586 $ 206 $ (122,166) $ (209,062) $ (267,601)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
S-74
<PAGE> 1011
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $14,550 for the six months ended
June 30, 1998, compared to $105,944 for the six months ended June 30, 1997. The
decrease in net income of $91,394, or 86.27% was primarily the result of a
decrease in rental revenues and an increase in operating expenses. These factors
are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$576,570 for the six months ended June 30, 1998, compared to $601,406 for the
six months ended June 30, 1997, a decrease of $24,836, or 4.13%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$284,781 for the six months ended June 30, 1998, compared to $217,629 for the
six months ended June 30, 1997, an increase of $67,152 or 30.86%. The increase
is due primarily to an increase in maintenance expenses and advertising costs to
improve the curb appeal of the property. Management expenses totaled $28,649 for
the six months ended June 30, 1998, compared to $31,186 for the six months ended
June 30, 1997, a decrease of $2,537, or 8.14%. The decrease resulted from a
decrease in rental revenues.
General and Administrative Expenses
General and administrative expenses totaled $22,508 for the six months
ended June 30, 1998 compared to $18,773 for the six months ended June 30, 1997,
an increase of $3,735 or 19.90%. The increase is primarily due to the timing of
asset management expense.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $145,388 for the six months ended June 30, 1998, compared to
$149,676 for the six months ended June 30, 1997, a decrease of $4,288, or 2.86%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $38,586 for the year ended
December 31, 1997, compared to $206 for the year ended December 31, 1996. The
increase in net income of $38,380, was primarily the result of an increase in
rental revenues offset by an increase in operating expenses. These factors are
discussed in more detail in the following paragraphs.
S-75
<PAGE> 1012
Revenues
Rental and other property revenues from the partnership's property totaled
$1,195,681 for the year ended December 31, 1997, compared to $1,137,701 for the
year ended December 31, 1996, an increase of $57,980, or 5.10%. The increase in
revenues is primarily due to an increase in average occupancy levels in 1997.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$511,450 for the year ended December 31, 1997, compared to $490,711 for the year
ended December 31, 1996, an increase of $20,739 or 4.23%. Management expenses
totaled $60,499 for the year ended December 31, 1997, compared to $56,001 for
the year ended December 31, 1996, an increase of $4,498, or 8.03%. The increase
resulted from an increase in rental revenues.
General and Administrative Expenses
General and administrative expenses totaled $41,726 for the year ended
December 31, 1997 compared to $42,772 for the year ended December 31, 1996, a
decrease of $1,046 or 2.45%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $389,906 for the year ended December 31, 1997, compared to
$398,035 for the year ended December 31, 1996, a decrease of $8,129, or 2.04%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $206 for the year ended December
31, 1996, compared to a net loss of $122,166 for the year ended December 31,
1995. The increase in net income of $122,372 was primarily the result of
increased revenues. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,137,701 for the year ended December 31, 1996, compared to $1,081,245 for the
year ended December 31, 1995, an increase of $56,456, or 5.22%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$490,711 for the year ended December 31, 1996, compared to $472,940 for the year
ended December 31, 1995, an increase of $17,771 or 3.76%. Management expenses
totaled $56,001 for the year ended December 31, 1996, compared to $54,303 for
the year ended December 31, 1995, an increase of $1,698, or 3.13%.
General and Administrative Expenses
General and administrative expenses totaled $42,772 for the year ended
December 31, 1996 compared to $41,487 for the year ended December 31, 1995, an
increase of $1,285 or 3.10%.
S-76
<PAGE> 1013
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $398,035 for the year ended December 31, 1996, compared to
$403,893 for the year ended December 31, 1995, a decrease of $5,858, or 1.45%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $50,846 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
The Partnership had debt that has matured in 1997 and due to Jacques Miller
Income Fund II totaling $413,606. This amount remains unpaid and the Company may
either refinance or negotiate the purchase of this note. However, there can be
no assurance that such a refinancing or negotiation will occur.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership is not
liable to your partnership or any limited partner for any acts or failures to do
any act performed by it of them in the absence of its willful malfeasance or
gross negligence. As a result, unitholders might have a more limited right of
action in certain circumstances than they would have in the absence of such a
provision in your partnership's agreement of limited partnership. The general
partner of your partnership is owned by AIMCO. See "Conflicts of Interest".
Your partnership's agreement of limited partnership does not provide for
indemnification of the general partner by your partnership for any acts or
omissions performed by them.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partner of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter. The
original cost per unit was $39,928.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1995........................................................ $38,456
1996........................................................ $33,620
1997........................................................ $33,815
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions
S-77
<PAGE> 1014
(excluding transactions believed to be between related parties, family
members or the same beneficial owner) was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF UNITS TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------- ------------
<S> <C> <C> <C>
1994.................................. 0.0 0.00% 0
1995.................................. 0.0 0.00% 0
1996.................................. 0.0 0.00% 0
1997.................................. 0.0 0.00% 0
1998 (through June 30)................ 0.75 2.34% 2
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR MANAGEMENT FEES
- ---- ---------------
<S> <C>
1994........................................................ $28,044
1995........................................................ $38,456
1996........................................................ $33,620
1997........................................................ $33,815
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... $54,303
1996........................................... $56,001
1997........................................... $60,499
1998 (through June 30)......................... $28,649
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-78
<PAGE> 1015
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Catawba Club Associates, L.P. at December 31,
1997 and 1996, appearing in this Prospectus Supplement have been audited by KPMG
Peat Marwick LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing. The
auditors' report dated February 23, 1998 refers to the fact that the partnership
is not generating sufficient cash flows to meet its maturing debt service
requirements, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
the related footnotes. The financial statements do not include any adjustments
that might result from the outcome of that uncertainty.
S-79
<PAGE> 1016
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-7
Balance Sheets as of December 31, 1997 and 1996............. F-8
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1997 and 1996............ F-9
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-10
Notes to Financial Statements............................... F-11
Independent Auditors' Report................................ F-15
Balance Sheets as of December 31, 1996 and 1995............. F-16
Statements of Operation and Changes in Partners' Deficit for
the years ended December 31, 1996 and 1995................ F-17
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-18
Notes to Financial Statements............................... F-19
Independent Auditors' Report................................ F-23
Balance Sheets as of December 31, 1995 and 1994............. F-24
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1995 and 1994............ F-25
Statements of Cash Flows for the years ended December 31,
1995 and 1994............................................. F-26
Notes to Financial Statements............................... F-27
</TABLE>
F-1
<PAGE> 1017
CATAWBA CLUB ASSOCIATES, LIMITED
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 50,846
Receivables and Deposits.................................... 56,799
Restricted Escrows.......................................... 202,492
Other Assets................................................ 62,881
Investment Property
Land...................................................... $ 329,875
Building and related personal property.................... 4,921,101
-----------
5,250,976
Less: Accumulated Depreciation............................ (3,504,143) 1,746,833
-----------
Total Assets:..................................... $ 2,119,851
===========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable............................................ $ 80,912
Other Accrued Liabilities................................... 26,393
Property Taxes Payable...................................... 50,504
Accrued Interest Payable.................................... 304,886
Tenant Security Deposits.................................... 19,792
Notes Payable............................................... 4,051,072
Partners' Deficit........................................... (2,413,708)
-----------
Total Liabilities and Partners' Deficit........... $ 2,119,851
===========
</TABLE>
See notes to interim financial statements
F-2
<PAGE> 1018
CATAWBA CLUB ASSOCIATES, LIMITED
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
JUNE 30, JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $544,883 $562,195
Other Income.............................................. 31,687 39,211
-------- --------
Total Revenues:................................... 576,570 601,406
Expenses:
Operating Expenses........................................ 284,781 217,629
General and Administrative Expenses....................... 22,508 18,773
Depreciation Expense...................................... 58,839 58,839
Interest Expense.......................................... 145,388 149,676
Property Tax Expense...................................... 50,504 50,545
-------- --------
Total Expenses:................................... 562,020 495,462
-------- --------
Net Income........................................ $ 14,550 $105,944
======== ========
</TABLE>
See notes to interim financial statements
F-3
<PAGE> 1019
CATAWBA CLUB ASSOCIATES, LIMITED
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
JUNE 30, JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ 14,550 $105,944
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 77,547 58,839
Changes in accounts:
Receivables and deposits and other assets............ 55,973 (5,047)
Accounts Payable and accrued expenses................ 25,788 351
Other Liabilities.................................... (35,638) (46,355)
-------- --------
Net cash provided by (used in) operating
activities....................................... 138,220 113,732
-------- --------
Investing Activities:
Property improvements and replacements.................... (39,683) (40,864)
Net (increase)/decrease in restricted escrows............. (4,468) 10,310
-------- --------
Net cash provided by (used in) investing
activities....................................... (44,151) (30,554)
-------- --------
Financing Activities:
Payments on mortgage...................................... (58,768) (54,480)
-------- --------
Net cash provided by (used in) financing
activities....................................... (58,768) (54,480)
-------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 35,301 28,698
Cash and cash equivalents at beginning of year.............. 15,545 37,698
-------- --------
Cash and cash equivalents at end of period.................. $ 50,846 $ 66,396
======== ========
</TABLE>
See notes to interim financial statements
F-4
<PAGE> 1020
CATAWBA CLUB ASSOCIATES, LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Catawba Club Associates,
Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
NOTE B -- SUBSEQUENT EVENT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-5
<PAGE> 1021
CATAWBA CLUB ASSOCIATES, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-6
<PAGE> 1022
INDEPENDENT AUDITORS' REPORT
General Partners
Catawba Club Associates, Limited:
We have audited the accompanying balance sheets of Catawba Club Associates,
Limited as of December 31, 1997 and 1996 and the related statements of
operations and changes in partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Catawba Club Associates,
Limited as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note E to the
financial statements, the Partnership is not generating sufficient cash flows to
meet its maturing debt service requirements, which raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note E. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
February 23, 1998
F-7
<PAGE> 1023
CATAWBA CLUB ASSOCIATES, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 15,545 $ 37,698
Receivables and deposits.................................... 109,356 74,817
Restricted escrows (Note B)................................. 198,024 204,220
Other assets................................................ 71,850 78,156
Investment properties (Note C):
Land...................................................... 300,000 300,000
Buildings and related personal property................... 4,911,293 4,743,062
----------- -----------
5,211,293 5,043,062
Less accumulated depreciation............................. (3,445,304) (3,327,626)
----------- -----------
1,765,989 1,715,436
----------- -----------
$ 2,160,764 $ 2,110,327
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 67,812 $ 14,070
Tenant security deposit liabilities....................... 22,759 27,395
Accrued taxes............................................. 96,198 96,276
Other liabilities (Note C)................................ 305,568 259,905
Notes payable (Note C).................................... 4,096,685 4,179,525
Partners' deficit........................................... (2,428,258) (2,466,844)
----------- -----------
$ 2,160,764 $ 2,110,327
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-8
<PAGE> 1024
CATAWBA CLUB ASSOCIATES, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,129,839 $ 1,061,661
Other income.............................................. 65,842 76,040
----------- -----------
Total revenues.................................... 1,195,681 1,137,701
----------- -----------
Expenses:
Operating (Note D)........................................ 511,450 490,711
General and administrative (Note D)....................... 41,726 42,772
Depreciation.............................................. 117,678 108,702
Interest.................................................. 389,906 398,035
Property taxes............................................ 96,335 97,275
----------- -----------
Total expenses.................................... 1,157,095 1,137,495
----------- -----------
Net income........................................ 38,586 206
Partners' deficit at beginning of year...................... (2,466,844) (2,467,050)
----------- -----------
Partners' deficit at end of year............................ $(2,428,258) $(2,466,844)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-9
<PAGE> 1025
CATAWBA CLUB ASSOCIATES, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 38,586 $ 206
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 117,678 108,702
Amortization of discounts and loan costs............... 41,433 41,433
Change in accounts:
Receivables and deposits............................. (34,539) (3,596)
Other assets......................................... (6,904) --
Accounts payable..................................... 53,742 (32,408)
Tenant security deposit liabilities.................. (4,636) 3,884
Accrued taxes........................................ (78) 9,660
Other liabilities.................................... 45,663 52,861
--------- ---------
Net cash provided by operating activities......... 250,945 180,742
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (168,231) (88,054)
Deposits to restricted escrows............................ (8,139) (8,129)
Receipts from restricted escrows.......................... 14,335 8,367
--------- ---------
Net cash used in investing activities............. (162,035) (87,816)
--------- ---------
Cash flows from financing activities:
Payments on notes payable................................. (111,063) (102,959)
--------- ---------
Net cash used in financing activities............. (111,063) (102,959)
--------- ---------
Net decrease in cash and cash equivalents......... (22,153) (10,033)
Cash and cash equivalents at beginning of year.............. 37,698 47,731
--------- ---------
Cash and cash equivalents at end of year.................... $ 15,545 $ 37,698
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 297,249 $ 305,353
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
F-10
<PAGE> 1026
CATAWBA CLUB ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Catawba Club Associates, Limited (the "Partnership") was organized as a
limited partnership under the laws of the State of Delaware pursuant to a
Limited Partnership Agreement and Certificate of Limited Partnership dated May
28, 1985. The Partnership owns and operates a 186 unit apartment complex,
Catawba Club Apartments, in Columbus, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group ("Insignia"). The property is managed by
Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 25 years and the personal property
assets as depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1997 and 1996 include deferred loan costs of
$64,946 and $78,156, respectively, which are amortized over the term of the
related borrowing. Deferred loan costs are shown net of accumulated
amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
F-11
<PAGE> 1027
CATAWBA CLUB ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the loan were placed into a capital improvement reserve
account to be used for certain capital improvements. The
capital improvements were completed in calendar year 1997
and any excess funds were returned for property
operations................................................ $ -- $ 14,335
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. 198,024 189,885
-------- --------
$198,024 $204,220
======== ========
</TABLE>
NOTE C -- NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$33,202, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $3,720,207 $3,831,270
Second mortgage note payable in interest only monthly
installments of $824, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 130,106 130,106
Unsecured 12.5% promissory note payable to the
Jacques-Miller Income Fund II, an affiliate, matured
November 1997; monthly payments of interest only and
payments of excess cash flows in February of each year as
defined in the note agreement............................. 412,606 412,606
---------- ----------
Principal balance at year end............................... 4,262,919 4,373,982
Less unamortized discount................................... (166,234) (194,457)
---------- ----------
$4,096,685 $4,179,525
========== ==========
</TABLE>
Accrued interest on the note payable to the Jacques-Miller Income Fund II
("JMIF II"), which is included in other liabilities, was $266,905 and $215,329
at December 31, 1997 and 1996, respectively. Management is currently attempting
to refinance the Partnership's unsecured note in order to obtain the funds
necessary to satisfy the note payable to Jacques-Miller Income Fund II. The
refinancing is expected to occur during the second quarter of 1998; however,
there is not assurance that such a refinancing will occur.
F-12
<PAGE> 1028
CATAWBA CLUB ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal payments of the notes during the years subsequent to
December 31, 1997, including $412,606 in 1998 for the JMIF II debt, which
matured in 1997, are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 532,410
1999..................................................... 129,234
2000..................................................... 139,405
2001..................................................... 150,376
2002..................................................... 3,311,494
----------
$4,262,919
==========
</TABLE>
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of prepayment or the present value of the excess of interest
which would be incurred at the stated rate under the notes over the interest
which would be incurred at the Treasury constant maturity for U.S. Government
obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates, in
addition to those disclosed in Note C, are as follows:
<TABLE>
<CAPTION>
1997 1996
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- ------- -------
<S> <C> <C>
Management fee............................................ $60,499 $56,001
Partnership administration fee............................ $10,791 $10,791
Reimbursement for services of affiliates.................. $23,024 $22,829
Reimbursement for construction oversight costs............ $ -- $ 196
</TABLE>
NOTE E -- GOING CONCERN
The General Partner is attempting to refinance the existing debt. The
General Partner believes that it will be successful, however there can be no
assurance that refinancing will be obtained.
The Partnership is not generating sufficient cash flows to meet its
maturing debt service requirements, which raises substantial doubt about its
ability to continue as a going concern. The financial statements have been
prepared assuming that the Partnership will continue as a going concern and do
not include any adjustments that might result from these uncertainties.
F-13
<PAGE> 1029
CATAWBA CLUB ASSOCIATES, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-14
<PAGE> 1030
INDEPENDENT AUDITORS' REPORT
General Partners
Catawba Club Associates, Limited:
We have audited the accompanying balance sheets of Catawba Club Associates,
Limited as of December 31, 1996 and 1995 and the related statements of
operations and changes in partners' deficit, and cash flows for the years then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted or audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Catawba Club Associates,
Limited as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 1, 1997
F-15
<PAGE> 1031
CATAWBA CLUB ASSOCIATES, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 37,698 $ 47,731
Restricted -- tenant security deposits.................... 27,395 23,511
Accounts receivable......................................... 3,049 3,961
Escrow for taxes............................................ 44,373 43,749
Restricted escrows (Note B)................................. 204,220 204,458
Other assets................................................ 78,156 91,366
Investment properties (Note C):
Land...................................................... 300,000 300,000
Buildings and related personal property................... 4,743,062 4,655,008
----------- -----------
5,043,062 4,955,008
Less accumulated depreciation............................. (3,327,626) (3,218,924)
----------- -----------
1,715,436 1,736,084
----------- -----------
$ 2,110,327 $ 2,150,860
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 14,070 $ 46,478
Tenant security deposits.................................. 27,395 23,511
Accrued taxes............................................. 96,276 86,616
Other liabilities (Note C)................................ 259,905 207,044
Notes payable (Note C).................................... 4,179,525 4,254,261
Partners' deficit........................................... (2,466,844) (2,467,050)
----------- -----------
$ 2,110,327 $ 2,150,860
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-16
<PAGE> 1032
CATAWBA CLUB ASSOCIATES, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,061,661 $ 997,400
Other income.............................................. 76,040 83,845
----------- -----------
Total revenues.................................... 1,137,701 1,081,245
----------- -----------
Expenses:
Operating (Note D)........................................ 365,106 343,870
General and administrative (Note D)....................... 42,772 41,487
Maintenance............................................... 125,605 129,070
Depreciation.............................................. 108,702 197,458
Interest.................................................. 398,035 403,893
Property taxes............................................ 97,275 87,633
----------- -----------
Total expenses.................................... 1,137,495 1,203,411
----------- -----------
Net income (loss)................................. 206 (122,166)
Partners' deficit at beginning of year...................... (2,467,050) (2,344,884)
----------- -----------
Partners' deficit at end of year............................ $(2,466,844) $(2,467,050)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-17
<PAGE> 1033
CATAWBA CLUB ASSOCIATES, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 206 $(122,166)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 108,702 197,458
Amortization of discounts and loan costs............... 41,433 40,168
Change in accounts:
Restricted cash...................................... (3,884) 2,820
Accounts receivable.................................. 912 (438)
Escrow for taxes..................................... (624) 7,143
Accounts payable..................................... (32,408) 20,002
Tenant security deposit liabilities.................. 3,884 (2,426)
Accrued taxes........................................ 9,660 1,113
Other liabilities.................................... 52,861 54,500
--------- ---------
Net cash provided by operating activities......... 180,742 198,174
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (88,054) (134,608)
Deposits to restricted escrows............................ (8,129) (7,853)
Receipts from restricted escrows.......................... 8,367 28,073
--------- ---------
Net cash used in investing activities............. (87,816) (114,388)
--------- ---------
Cash flows from financing activities:
Payments on notes payable................................. (102,959) (95,488)
--------- ---------
Net cash used in financing activities............. (102,959) (95,448)
--------- ---------
Net decrease in cash and cash equivalents......... (10,033) (11,662)
Cash and cash equivalents at beginning of year.............. 47,731 59,393
--------- ---------
Cash and cash equivalents at end of year.................... $ 37,698 $ 47,731
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 305,353 $ 312,864
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
F-18
<PAGE> 1034
CATAWBA CLUB ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Catawba Club Associates, Limited (the "Partnership") was organized as a
limited partnership under the laws of the State of Delaware pursuant to a
Limited Partnership Agreement and Certificate of Limited Partnership dated May
28, 1985. The Partnership owns and operates a 186 unit apartment complex,
Catawba Club Apartments, in Columbus, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group ("Insignia"). The property is managed by
Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 25 years and the personal property
assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1996 and 1995 consist of deferred loan costs
which are amortized over the term of the related borrowing. Deferred loan costs
are shown net of accumulated amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation. These reclassifications had no impact on net loss or partners'
deficit as previously reported.
F-19
<PAGE> 1035
CATAWBA CLUB ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the loan were placed into a capital improvement reserve
account to be used for certain capital improvements. The
capital improvements are anticipated to be completed in
calendar year 1997 and any excess funds will be returned
for property operations................................... $ 14,335 $ 14,159
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. 189,885 190,299
-------- --------
$204,220 $204,458
======== ========
</TABLE>
NOTE C -- NOTES PAYABLE
Notes payable at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$33,202, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $3,831,270 $3,934,229
Second mortgage note payable in interest only monthly
installments of $824, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 130,106 130,106
Unsecured 12.5% promissory note payable to the
Jacques-Miller Income Fund II, an affiliate, due November
1997; monthly payments of interest only and payments of
excess cash flows in February of each year as defined in
the note agreement........................................ 412,606 412,606
---------- ----------
Principal balance at year end............................... 4,373,982 4,476,941
Less unamortized discount................................... (194,457) (222,680)
---------- ----------
$4,179,525 $4,254,261
========== ==========
</TABLE>
Accrued interest on the note payable to the Jacques-Miller Income Fund II,
which is included in other liabilities, was $215,329 and $163,753 at December
31, 1996 and 1995, respectively.
Scheduled principal payments of the notes during the years subsequent to
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 523,670
1998..................................................... 119,804
1999..................................................... 129,234
2000..................................................... 139,405
2001..................................................... 150,376
Thereafter............................................... 3,311,493
----------
$4,373,982
==========
</TABLE>
F-20
<PAGE> 1036
CATAWBA CLUB ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to November 15, 1997. Thereafter the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of prepayment or the present value of the excess
of interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations. The unsecured note may be prepaid at any time without
penalty.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates, in
addition to those disclosed in Note C, are as follows:
<TABLE>
<CAPTION>
1996 1995
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- ------- -------
<S> <C> <C>
Management fee............................................ $56,001 $54,335
Partnership administration fee............................ $10,791 $10,817
Reimbursement for services of affiliates.................. $22,829 $21,751
Reimbursement for construction oversight costs............ $ 196 $ 5,888
</TABLE>
F-21
<PAGE> 1037
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1038
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1039
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1040
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS
OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M.,
DENVER, COLORADO TIME, ON , 1998,
OUR OFFER CONSIDERATION WILL BE REDUCED UNLESS WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1041
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-8
The AIMCO Operating Partnership.............. S-8
The Offer.................................... S-8
Risk Factors................................. S-8
Background and Reasons for the Offer......... S-13
Terms of the Offer........................... S-15
Certain Federal Income Tax Matters........... S-16
Valuation of Units........................... S-17
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-18
Comparison of Your Partnership and Our
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-20
Summary Financial Information of AIMCO
Properties, L.P............................ S-21
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-23
Summary Financial Information of Cedar Tree
Investors Limited Partnership.............. S-26
Comparative Per Unit Data.................... S-26
THE AIMCO OPERATING PARTNERSHIP................ S-27
RISK FACTORS................................... S-27
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-27
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-28
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-29
BACKGROUND AND REASONS FOR THE OFFER........... S-30
Background of the Offer...................... S-30
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
THE OFFER...................................... S-33
Terms of the Offer; Expiration Date.......... S-33
Acceptance for Payment and Payment for
Units...................................... S-33
Procedure for Tendering Units................ S-34
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-37
Proration.................................... S-37
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-39
Dissenters' Rights........................... S-39
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-42
Accounting Treatment......................... S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-43
Allocation................................... S-44
Liquidation Preference....................... S-44
Redemption................................... S-45
Voting Rights................................ S-45
Restrictions on Transfer..................... S-45
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-48
CERTAIN FEDERAL INCOME TAX MATTERS............. S-51
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-51
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-51
Tax Consequences of Exchanging Units Solely
for Cash................................... S-52
Adjusted Tax Basis........................... S-52
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-53
Passive Activity Losses...................... S-53
Foreign Offerees............................. S-54
VALUATION OF UNITS............................. S-54
FAIRNESS OF THE OFFER.......................... S-55
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-55
Fairness to Unitholders who Tender their
Units...................................... S-56
Fairness to Unitholders who do not Tender
their Units................................ S-57
Comparison of Consideration to Alternative
Consideration.............................. S-57
Allocation of Consideration.................. S-58
STANGER ANALYSIS............................... S-58
Experience of Stanger........................ S-59
Summary of Materials Considered.............. S-59
Summary of Reviews........................... S-60
Conclusions.................................. S-60
Assumptions, Limitations and
Qualifications............................. S-60
Compensation and Material Relationships...... S-61
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-62
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
CONFLICTS OF INTEREST.......................... S-71
Conflicts of Interest with Respect to the
Offer...................................... S-71
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-71
Competition Among Properties................. S-71
Features Discouraging Potential Takeovers.... S-71
Future Exchange Offers....................... S-71
YOUR PARTNERSHIP............................... S-72
General...................................... S-72
Your Partnership and its Property............ S-72
</TABLE>
i
<PAGE> 1042
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-72
Investment Objectives and Policies; Sale or
Financing of Investments................... S-72
Capital Replacement.......................... S-73
Borrowing Policies........................... S-73
Competition.................................. S-73
Legal Proceedings............................ S-73
Selected Financial Information............... S-73
Balance Sheet Data......................... S-74
Statement of Operations.................... S-74
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Your Partnership............. S-75
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-77
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-78
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-79
LEGAL MATTERS.................................. S-79
EXPERTS........................................ S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1043
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Cedar Tree Investors Limited Partnership. For each unit that you tender,
you may choose to receive of our Tax-Deferral %
Partnership Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred
to as "Common OP Units"), or $ in cash (subject, in each case to
adjustment for any distributions paid to you during the offer period). If
you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1044
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 1045
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $2,640 per unit for the six months
ended June 30, 1998 (equivalent to $5,280 on an annual basis). We will pay
fixed quarterly distributions of $ per unit on the
Tax-Deferral % Preferred OP Units before any distributions are paid to
holders of Tax-Deferral Common OP Units. We pay quarterly distributions on
the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the six months ended June 30, 1998, we paid distributions
of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25
on an annual basis). This is equivalent to distributions of $ per year
on the number of Tax-Deferral % Preferred OP Units or distributions of
$ per year on the number of Tax-Deferral Common OP Units that you would
receive in an exchange for each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
S-3
<PAGE> 1046
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer considerations of $ consideration is
fair. However, your units are not listed on any national securities
exchange nor quoted on the NASDAQ System, and there is no established
trading market for your units. Secondary sales activity for the units has
been limited and sporadic. Your general partner does not monitor or
regularly receive or maintain information regarding the prices at which
secondary sale transactions in the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
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Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
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Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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<PAGE> 1050
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly, you
might receive more value if you retain your units
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<PAGE> 1051
until your partnership is liquidated. However, you may prefer to receive the
offer consideration now rather than wait for uncertain future net liquidation
proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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<PAGE> 1052
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
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<PAGE> 1053
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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<PAGE> 1054
rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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<PAGE> 1055
authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently don't own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership may require funding from its partners. Continuation of its
operations may be dependent on additional funding from partners or from
other sources. Your partnership faces maturity or balloon payment dates on
its mortgage loans and must either obtain refinancing or sell its property.
If your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. In addition, continuation of your
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partnership without the offer would deny you and your partners the benefits
that your general partner expects to result from the offer. For example, a
partner of your partnership would have no opportunity for liquidity unless
he were to sell his units in a private transaction. Any such sale would
likely be at a very substantial discount from the partner's pro rata share
of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax Deferral % Preferred OP
Units rank equal to six other outstanding classes of Partnership
Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
S-14
<PAGE> 1057
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
S-15
<PAGE> 1058
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
S-16
<PAGE> 1059
PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO
STOCKHOLDERS", "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND
OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO
YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to
S-17
<PAGE> 1060
Stanger is accurate in all material respects. You should make your decision
whether to tender based upon a number of factors, including your financial
needs, other financial opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
S-18
<PAGE> 1061
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fee
for its services as general partner of your partnership, but may receive
reimbursement for expenses generated in that capacity from the partnership. The
property manager received management fees of $94,152 in 1996, $96,106 in 1997
and $52,073 for the first six months of 1998. We have no current intention of
changing the fee structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Cedar Tree Investors Limited Partnership
is a Kansas limited partnership which was formed on June 14, 1991 for the
purpose of owning and operating a single apartment property located in Shawnee,
Kansas, known as Cedar Tree Apartments. In 1991, it completed a private
placement of units that raised net proceeds of approximately $2,550,000. Cedar
Tree Apartments consists of 344 apartment units. Your partnership has no
employees.
Property Management. Since December 1990, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
S-19
<PAGE> 1062
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2021, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $4,622,405, payable to FNMA, which bears
interest at a rate of 6.43%. The mortgage debt is due in September, 2008. Your
partnership's agreement of limited partnership also allows your general partner
to lend funds to your partnership. Currently, the general partner of your
partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-20
<PAGE> 1063
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-21
<PAGE> 1064
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-22
<PAGE> 1065
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-23
<PAGE> 1066
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-24
<PAGE> 1067
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-25
<PAGE> 1068
SUMMARY FINANCIAL INFORMATION OF CEDAR TREE INVESTORS LIMITED PARTNERSHIP
The summary financial information of Cedar Tree Investors Limited
Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The
summary financial information for Cedar Tree Investors Limited Partnership for
the years ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on
audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of Your
Partnership" included herein. See "Index to Financial Statements."
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues............ 1,033,496 905,675 1,956,671 1,900,467 1,869,651 1,771,627 1,700,427
Net Income/(Loss)............... 240,157 138,099 270,488 252,642 174,244 300,722 303,674
Balance Sheet Data:
Real Estate, Net of Accumulated
Depreciation.................. 5,354,018 5,480,690 5,393,560 5,568,526 5,764,894 5,807,474 5,938,571
Total Assets.............. 6,386,775 6,377,911 6,301,510 6,463,360 6,744,275 6,967,984 7,210,155
Mortgage Notes Payable,
including Accrued Interest.... 4,660,170 4,711,190 4,647,993 4,734,411 4,777,285 4,816,798 4,852,655
Partners' Capital/(Deficit)..... 1,479,763 1,509,226 1,439,604 1,573,136 1,722,504 1,948,260 2,202,841
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 $2,640 $5,333.06
</TABLE>
S-26
<PAGE> 1069
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-27
<PAGE> 1070
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-28
<PAGE> 1071
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June, 1998 were $2,640 per unit (equivalent to
$5,280 on an annualized basis). This is equivalent to distributions of
$ per year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common OP
Units, that you would received in an exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
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MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high level of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for
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investment, business, personal or other purposes, at their option. If your
partnership were to sell its assets and liquidate, you and your partners would
not need to rely upon capitalization of income or other valuation methods to
estimate the fair market value of your partnership's assets. Instead, such
assets would be valued through negotiations with prospective purchasers (in many
cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your Partnership may require funding from its partners. Continuation of
its operations may be dependent on additional funding from partners or from
other sources. Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
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- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole
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discretion, which determination shall be final and binding on all parties. The
AIMCO Operating Partnership reserves the absolute right to reject any or all
tenders of any particular unit determined by it not to be in proper form or if
the acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other
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person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, by increasing or decreasing the number of Preferred OP Units or
Common OP Units, or the amount of cash offered, eliminating any of the
alternative types of consideration being offered, or increasing or decreasing
the percentage of outstanding units being sought). Notice of any such extension,
termination or amendment will promptly be disseminated in a manner reasonably
designed to inform unitholders of such change. In the case of an extension of
the offer, the extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., Denver, Colorado
time, on the next business day after the scheduled expiration date of the offer,
in accordance with Rule 14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
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If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
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VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, which change, in the sole judgment of the AIMCO Operating
Partnership, is or may be materially adverse to your partnership or the
value of your units to the AIMCO Operating Partnership, or the AIMCO
Operating Partnership shall have become aware of any facts relating to your
partnership, its indebtedness or its operations which, in the sole judgment
of the AIMCO Operating Partnership, has or may have material significance
with respect to the value of your partnership or the value of your units to
the AIMCO Operating Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998 (iii) any extraordinary or material
adverse change in the financial, real estate or money markets or major
equity security indices in the United States such that there shall have
occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in
the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending institutions, or (viii) in the case of any of the foregoing
existing at the time of the commencement of the offer, in the sole judgment
of the AIMCO Operating Partnership, a material acceleration or worsening
thereof; or
(c) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental agency,
or by any other person, before any governmental authority, court or
regulatory or administrative
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agency, authority or tribunal, which (i) challenges or seeks to challenge
the acquisition by the AIMCO Operating Partnership of the units, restrains,
prohibits or delays the making or consummation of the offer, prohibits the
performance of any of the contracts or other arrangements entered into by
the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating
Partnership) seeks to obtain any material amount of damages as a result of
the transactions contemplated by the offer, (ii) seeks to make the purchase
of, or payment for, some or all of the units pursuant to the offer illegal
or results in a delay in the ability of the AIMCO Operating Partnership to
accept for payment or pay for some or all of the units, (iii) seeks to
prohibit or limit the ownership or operation by AIMCO or any of its
affiliates of the entity serving as the general partner of your partnership
or to remove such entity as the general partner of your partnership, or
seeks to impose any material limitation on the ability of the AIMCO
Operating Partnership or any of its affiliates to conduct your
partnership's business or own such assets, (iv) seeks to impose material
limitations on the ability of the AIMCO Operating Partnership or any of its
affiliates to acquire or hold or to exercise full rights of ownership of
the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to
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acquire beneficial ownership of more than four percent of the units, or
shall have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than four percent of the
units, or (ii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect to a
merger, consolidation, purchase or lease of assets, debt refinancing or
other business combination with or involving your partnership.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to your partnership's business, or that certain
parts of your partnership's business might not have to be disposed of or other
substantial conditions complied with in order to obtain such approval or action,
any of which could cause the
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<PAGE> 1084
AIMCO Operating Partnership to elect to terminate the offer without
purchasing units hereunder. The AIMCO Operating Partnership's obligation to
purchase and pay for units is subject to certain conditions, including
conditions related to the legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts
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distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of such interest (the Common OP Units and such other
interests are collectively referred to herein as "Junior Units"); (ii) on a
parity with the Class B Partnership Preferred Units, the Class C Partnership
Preferred Units, the Class D Partnership Preferred Units, the Class G
Partnership Preferred Units, the Class H Partnership Preferred Units, and with
any other interest in the AIMCO Operating Partnership if the holders of such
interest and the Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accumulated, accrued and unpaid
distributions or stated preferences, without preference or priority of one over
the other ("Parity Units"); and (iii) junior to the Class F Partnership
Preferred Units and any other interest in the AIMCO Operating Partnership if the
holders of such interest shall be entitled to the receipt of distributions or
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Preferred OP Units ("Senior Units"). Junior
Units, Parity Units and Senior Units may be issued from time to time by the
AIMCO Operating Partnership without any approval or consent by holders of the
Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for
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such payment, for all past distribution periods, no distributions shall be
declared or paid or set apart for payment by the AIMCO Operating Partnership
with respect to any Parity Units. Unless full cumulative distributions
(including all accumulated, accrued and unpaid distributions) on the Preferred
OP Units have been declared and paid, or declared and set apart for payment, for
all past distribution periods, no distributions (other than distributions or
distributions paid in Junior Units or options, warrants or rights to subscribe
for or purchase Junior Units) may be declared or paid or set apart for payment
by the AIMCO Operating Partnership and no other distribution of cash or other
property may be declared or made, directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall any Junior Units be
redeemed, purchased or otherwise acquired (except for a redemption, purchase or
other acquisition of Common OP Units made for purposes of an employee incentive
or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for
any consideration (or any monies be paid to or made available for a sinking fund
for the redemption of any such Junior Units), directly or indirectly, by the
AIMCO Operating Partnership (except by conversion into or exchange for Junior
Units, or options, warrants or rights to subscribe for or purchase Junior
Units), nor shall any other cash or other property be paid or distributed to or
for the benefit of holders of Junior Units. Notwithstanding the foregoing
provisions of this paragraph, the AIMCO Operating Partnership shall not be
prohibited from (i) declaring or paying or setting apart for payment any
distribution on any Parity Units or (ii) redeeming, purchasing or otherwise
acquiring any Parity Units, in each case, if such declaration, payment,
redemption, purchase or other acquisition is necessary to maintain AIMCO's
qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations shall have been made in full
to the holders of Preferred OP Units and any Parity Units to enable them to
receive their Liquidation Preference, any Junior Units shall be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Preferred OP Units and any Parity Units shall not be entitled to share
therein.
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REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 1090
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 1091
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 1092
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 1093
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 1094
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 1095
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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<PAGE> 1096
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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<PAGE> 1097
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 1098
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to
the Common OP Units are $2.25, and distributions with respect to your units
for the six months ended June, 1998 were $2,640 (equivalent to $5,280 on an
annualized basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units, or distributions
of $ per year on the number of Tax-Deferral Common OP Units, that
you would receive in exchange for each of your partnership's units.
Therefore, distributions with respect to the Preferred OP Units and Common
OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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<PAGE> 1099
partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
S-57
<PAGE> 1100
apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders.
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<PAGE> 1101
We determined the offer consideration, and Stanger did not, and was not
requested to, make any recommendations as to the form or amount of consideration
to be paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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<PAGE> 1102
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning,
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<PAGE> 1103
among other things, any environmental liabilities, deferred maintenance and
estimated capital expenditure and replacement reserve requirements, the
determination and valuation of non-real estate assets and liabilities of your
partnership, the allocation of your partnership's net values between the general
partner, special limited partner and limited partners of your partnership, the
terms and conditions of any debt encumbering the partnership's property, and the
transaction costs and fees associated with a sale of the property. Stanger also
relied upon the assurance of your partnership, AIMCO, and the management of the
partnership's property that any financial statements, budgets, pro forma
statements, projections, capital expenditure estimates, debt, value estimates
and other information contained in this Prospectus Supplement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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<PAGE> 1104
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Kansas law for the purpose of owning and managing Delaware limited partnership. The AIMCO Operating
Cedar Tree Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash From Operations (as defined in of the AIMCO Operating Partnership's agreement of
your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership
The termination date of your partnership is December Agreement") or as provided by law. See "Description of
31, 2021. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire and operate The purpose of the AIMCO Operating Partnership is to
your partnership's property for investment. Subject to conduct any business that may be lawfully conducted by
restrictions contained in your partnership's agreement a limited partnership organized pursuant to the
of limited partnership, your partnership may do all Delaware Revised Uniform Limited Partnership Act (as
things necessary for or incidental to the protection amended from time to time, or any successor to such
and benefit of your partnership, including, borrowing statute) (the "Delaware Limited Partnership Act"),
funds and creating liens. provided that such business is to be conducted in a
manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
S-62
<PAGE> 1105
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 75 units for cash and time to the limited partners and to other persons, and
notes to selected persons who fulfill the requirements to admit such other persons as additional limited
set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital
partnership. The capital contribution need not be equal contributions as may be established by the general
for all limited partners and no action or consent is partner in its sole discretion. The net capital
required in connection with the admission of any contribution need not be equal for all OP Unitholders.
additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership may not enter The AIMCO Operating Partnership may lend or contribute
into agreements with itself or any of its affiliates funds or other assets to its subsidiaries or other
for services, except as otherwise specifically provided persons in which it has an equity investment, and such
in your partnership's agreement of limited partnership persons may borrow funds from the AIMCO Operating
or on a basis no less favorable to your partnership Partnership, on terms and conditions established in the
than that which could have been arranged with sole and absolute discretion of the general partner. To
unaffiliated third parties for comparable goods or the extent consistent with the business purpose of the
services. Your partnership may not lend money to the AIMCO Operating Partnership and the permitted
general partner or its affiliates, but the general activities of the general partner, the AIMCO Operating
partner may lend such money to your partnership as the Partnership may transfer assets to joint ventures,
general partner, in its sole discretion, deems limited liability companies, partnerships,
necessary for the payment of any partnership corporations, business trusts or other business
obligations and expenses. Such loans will be repaid entities in which it is or thereby becomes a
with interest at rate of 1% per annum over the then participant upon such terms and subject to such
prevailing prime rate of United Missouri Bank of Kansas conditions consistent with the AIMCO Operating Part-
City, N.A., but in no event to exceed the maximum rate, nership Agreement and applicable law as the general
from the first available funds of your partnership and partner, in its sole and absolute discretion, believes
prior to distributions to the limited partners, only to be advisable. Except as expressly permitted by the
from available funds; provided, however, that the AIMCO Operating Partnership Agreement, neither the
general partner must first make reasonable efforts to general partner nor any of its affiliates may sell,
obtain loans at the most favorable rates from transfer or convey any property to the AIMCO Operating
unaffiliated persons. Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to enter into and execute, on behalf of your restrictions on borrowings, and the general partner has
partnership, all agreements, contracts, instruments and full power and authority to borrow money on behalf of
related documents in connection with the acquisition, the AIMCO Operating Partnership. The AIMCO Operating
ownership, financing, management, maintenance, op- Partnership has credit agreements that restrict, among
eration and sale of your partnership's property by your other things, its ability to incur indebtedness. See
partnership, on such terms as the general partner, in "Risk Factors -- Risks of Significant Indebtedness" in
its reasonable discretion, deems to be in the bests the accompanying Prospectus.
interests of your partnership.
</TABLE>
S-63
<PAGE> 1106
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners or their duly authorized with a statement of the purpose of such demand and at
representative to inspect and copy the books and such OP Unitholder's own expense, to obtain a current
records of your partnership, including a current list list of the name and last known business, residence or
of the full name and last known business address of mailing address of the general partner and each other
each partner set forth in alphabetical order, upon OP Unitholder.
reasonable notice during business hours at the
principal place of business of your partnership or such
other place or places as may be determined by the
general partner from time to time. In addition, a
limited partner or its duly authorized representative
has the right to receive by mail, upon written required
to your partnership at such limited partner's sole cost
and expense, a copy of a list of names and addresses of
the limited partners and the number of units owned by
each of them. However, no limited partner has the right
to sell or disclose such list to any other person or to
use such list for commercial purposes of any purpose
unrelated to the business of your partnership.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has full, All management powers over the business and affairs of
exclusive and complete discretion in the management of the AIMCO Operating Partnership are vested in AIMCO-GP,
your partnership's business and has all rights and Inc., which is the general partner. No OP Unitholder
powers generally conferred by law or necessary, has any right to participate in or exercise control or
advisable or consistent in connection therewith. The management power over the business and affairs of the
general partner must perform such reasonable acts as AIMCO Operating Partnership. The OP Unitholders have
may be consistent with good business practices in its the right to vote on certain matters described under
performance as general partner. No limited partner may "Comparison of Ownership of Your Units and AIMCO OP
take part in or interfere in any manner with the Units -- Voting Rights" below. The general partner may
conduct or control of the business of your partnership not be removed by the OP Unitholders with or without
and no limited partner has the right or authority to cause.
act for or bind your partnership.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the doing of any act or the failure to do the AIMCO Operating Partnership Agreement, the general
any act by the general partner, which does not partner is not liable to the AIMCO Operating
constitute fraud, gross negligence or willful mal- Partnership for losses sustained, liabilities incurred
feasance as determined by a court of competent or benefits not derived as a result of errors in
jurisdiction, in pursuance of the authority granted to judgment or mistakes of fact or law of any act or
promote the interests of your partnership, the effect omission if the general partner acted in good faith.
of which causes or results in loss or damage to your The AIMCO Operating Partnership Agreement provides for
partnership, if done in good faith, will not subject indemnification of AIMCO, or any director or officer of
the general partner or its affiliates to any liability. AIMCO (in its capacity as the previous general partner
In addition, your partnership will also indemnify and of the AIMCO Operating Partnership),
hold harmless the gen-
</TABLE>
S-64
<PAGE> 1107
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
eral partners and their affiliates from any claim, the general partner, any officer or director of general
loss, expense, liability, action or damage resulting partner or the AIMCO Operating Partnership and such
from any act or omission done in good faith which does other persons as the general partner may designate from
not constitute fraud, gross negligence or willful and against all losses, claims, damages, liabilities,
malfeasance as determined by a court of competent joint or several, expenses (including legal fees),
jurisdiction, in pursuance of the authority granted to fines, settlements and other amounts incurred in
promote the interests of your partnership, including, connection with any actions relating to the operations
without limitation, reasonable fees and expenses of of the AIMCO Operating Partnership, as set forth in the
attorneys engaged by the general partner in defense of AIMCO Operating Partnership Agreement. The Delaware
such act or omission and other reasonable costs and Limited Partnership Act provides that subject to the
expenses of litigation and appeal. standards and restrictions, if any, set forth in its
partnership agreement, a limited partnership may, and
shall have the power to, indemnify and hold harmless
any partner or other person from and against any and
all claims and demands whatsoever. It is the position
of the Securities and Exchange Commission that
indemnification of directors and officers for
liabilities arising under the Securities Act is against
public policy and is unenforceable pursuant to Section
14 of the Securities Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, after notice to the general partner, the has exclusive management power over the business and
limited partners may remove such general partner upon a affairs of the AIMCO Operating Partnership. The general
vote of the limited partners holding a majority of the partner may not be removed as general partner of the
outstanding units. A general partner may resign at any AIMCO Operating Partnership by the OP Unitholders with
time provided that such resignation is accepted by the or without cause. Under the AIMCO Operating Partnership
limited partners owning more than 50% of the Agreement, the general partner may, in its sole
outstanding units and sixty days prior to the effective discretion, prevent a transferee of an OP Unit from
date of such resignation such general partner nominates becoming a substituted limited partner pursuant to the
as a substitute general partner a willing person or AIMCO Operating Partnership Agreement. The general
entity who meets the requirements of the tax laws. A partner may exercise this right of approval to deter,
general partner may be admitted only with the consent delay or hamper attempts by persons to acquire a
of the general partners, if any, and a controlling interest in the AIMCO Operating Partner-
majority-in-interest of the limited partners. A limited ship. Additionally, the AIMCO Operating Partnership
partner may not transfer its units without the consent Agreement contains restrictions on the ability of OP
of the general partner. Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Approval by a majority of the then outstanding limited With the exception of certain circumstances set forth
partnership interests is necessary to effect an in the AIMCO Operating Partnership Agreement, whereby
amendment to your partnership's agreement of limited the general partner may, without the consent of the OP
partnership. Amendments may be proposed by the general Unitholders, amend the AIMCO Operating Partnership
partner or by limited partners holding 10% or more of Agreement, amendments to the AIMCO Operating
the then outstanding units. However, the general Partnership Agreement require the consent of the
partner may amend your partnership's agreement of holders of a majority of the outstanding Common OP
limited partnership from time to time to effect changes Units, excluding AIMCO and certain other limited
of a ministerial nature which do not materially and exclusions (a "Majority in Interest"). Amendments to
adversely affect the rights of the limited partners, as the AIMCO Operating Partnership Agreement may be
required by law, to add to the representations, duties proposed by the general partner or by holders of a
or obligations of the general partner or surrender any Majority in Interest. Following such proposal, the
right or power granted to the general partner under general partner will submit any proposed amendment to
your partnership's agreement of limited partnership for the OP Unitholders. The general partner will seek the
the benefit of the limited partners, to cure any written consent of the OP Unitholders on the proposed
ambiguity and to correct or supplement any provision in amendment or will call a meeting to vote thereon. See
your partnership's agreement of limited partnership "Description of OP Units -- Amendment of the AIMCO
which may be inconsistent with any other provision. Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating
Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part-
be entitled to
</TABLE>
S-65
<PAGE> 1108
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
compensation for additional services rendered. nership is responsible for all expenses incurred
relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
No limited partner, unless it is deemed to be taking Except for fraud, willful misconduct or gross
part in the control of the business of your negligence, no OP Unitholder has personal liability for
partnership, is bound by or personally liable for the the AIMCO Operating Partnership's debts and
expenses, liabilities or obligation of your obligations, and liability of the OP Unitholders for
partnership. The liability of a limited partner is the AIMCO Operating Partnership's debts and obligations
limited solely to the amount of its contribution to the is generally limited to the amount of their invest-
capital of your partnership, whether or not returned to ment in the AIMCO Operating Partnership. However, the
it, together with the undistributed share of the limitations on the liability of limited partners for
profits of your partnership from time to time credited the obligations of a limited partnership have not been
to such limited partner's capital account and any money clearly established in some states. If it were
or other property wrongfully paid or conveyed to such determined that the AIMCO Operating Partnership had
limited partner on account of its contribution, been conducting business in any state without compli-
including but not limited to money or property to which ance with the applicable limited partnership statute,
creditors were legally entitled, paid or conveyed to or that the right or the exercise of the right by the
such limited partner, and under certain circumstances, holders of OP Units as a group to make certain
interest on returned capital. amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner of your partnership is not required Unless otherwise provided for in the relevant
to devote all of its time or business efforts to the partnership agreement, Delaware law generally requires
affairs of your partnership, but must devote so much of a general partner of a Delaware limited partnership to
its time and attention to your partnership as is adhere to fiduciary duty standards under which it owes
necessary and advisable to successfully manage the its limited partners the highest duties of good faith,
affairs of your partnership. The general partner is not fairness and loyalty and which generally prohibit such
required to manage your partnership as its sole and general partner from taking any action or engaging in
exclusive function and it may have other business any transaction as to which it has a conflict of
interests and may engage in other activities in interest. The AIMCO Operating Partnership Agreement
addition to those relating to your partnership, includ- expressly authorizes the general partner to enter into,
ing the rendering of advice or services of any kind to on behalf of the AIMCO Operating Partnership, a right
other investors and the making or management of other of first opportunity arrangement and other conflict
investors. Neither your partnership nor any partner has avoidance agreements with various affiliates of the
rights in or to such ventures or activities or to the AIMCO Operating Partnership and the general partner, on
income or proceeds derived therefrom, and the pursuit such terms as the general partner, in its sole and
of such ventures, even if competitive with the business absolute discretion, believes are advisable. The AIMCO
of your partnership, shall not be deemed wrongful or Operating Partnership Agreement expressly limits the
improper. In addition, any partner or its affiliates liability of the general partner by providing that the
may engage in or possess an interest in other business general partner, and its officers and directors will
ventures of every nature and description, whether such not be liable or accountable in damages to the AIMCO
ventures are competitive with your partnership or Operating Partnership, the limited partners or
otherwise, including but not limited to, the acquisi- assignees for errors in judgment or mistakes of fact or
tion, ownership, financing, leasing, operation, law or of any act or omission if the general partner or
management, syndication, brokerage, sale, construction such director or officer acted in good faith. See
and development of real property, which may be located "Description of OP Units -- Fiduciary Responsibilities"
in the market area or vicinity of your partnership's in the accompanying Prospectus.
property, and neither your partnership nor any partners
shall have any right in or to such independent ventures
or to the income or profits derived therefrom.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's
</TABLE>
S-66
<PAGE> 1109
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
taxable income or loss when it determines its
individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and loss from the AIMCO Operating
Partnership can only be offset against other income and
loss from the AIMCO Operating Partnership). Income of
the AIMCO Operating Partnership, however, attributable
to dividends from the Management Subsidiaries (as
defined below) or interest paid by the Management
Subsidiaries does not qualify as passive activity
income and cannot be offset against losses from
"passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, the applicable law or in the AIMCO ship Agreement, the OP Unitholders
approval of hold- Operating Part- have
</TABLE>
S-67
<PAGE> 1110
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
ers of a majority of the nership Agreement, the holders of voting rights only with respect to
outstanding units is required to the Preferred OP Units will have certain limited matters such as
amend your partnership's agreement the same voting rights as holders certain amendments and termination
of limited partnership subject to of the Common OP Units. See of the AIMCO Operating Partnership
certain limitations, to terminate "Description of OP Units" in the Agreement and certain transactions
your partnership, to remove a accompanying Prospectus. So long as such as the institution of
general partner and elect a any Preferred OP Units are bankruptcy proceedings, an
replacement therefore and to outstanding, in addition to any assignment for the benefit of
approve or disapprove the sale at other vote or consent of partners creditors and certain transfers by
one time (or in a series of sales required by law or by the AIMCO the general partner of its interest
pursuant to a single plan) of all Operating Partnership Agreement, in the AIMCO Operating Part-
or substantially all of your the affirmative vote or consent of nership or the admission of a
partnership's assets except sales holders of at least 50% of the successor general partner.
made in the ordinary course of your outstanding Preferred OP Units will
partnership's continuing business. be necessary for effecting any Under the AIMCO Operating Partner-
All such actions, except the amendment of any of the provisions ship Agreement, the general partner
removal of a general partner of the Partnership Unit Desig- has the power to effect the
requires the concurrence of the nation of the Preferred OP Units acquisition, sale, transfer,
general partner. that materially and adversely exchange or other disposition of
affects the rights or preferences any assets of the AIMCO Operating
A general partner may cause the of the holders of the Preferred OP Partnership (including, but not
dissolution of your partnership by Units. The creation or issuance of limited to, the exercise or grant
retiring unless, within ninety any class or series of partnership of any conversion, option,
days, the remaining general partner units, including, without privilege or subscription right or
agrees to continue the business of limitation, any partnership units any other right available in
your partnership. If there are no that may have rights senior or connection with any assets at any
remaining general partners, all of superior to the Preferred OP Units, time held by the AIMCO Operating
the limited partners may agree to shall not be deemed to materially Partnership) or the merger,
continue the business and elect a adversely affect the rights or consolidation, reorganization or
successor general partner by a preferences of the holders of other combination of the AIMCO
majority-in-interest vote within 90 Preferred OP Units. With respect to Operating Partnership with or into
days of the resignation. the exercise of the above de- another entity, all without the
scribed voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such
partners are not fixed in amount provided, however, that at any time portion as the general partner may
and depend upon the operating and from time to time on or after in its sole and absolute discretion
results and net sales or the fifth anniversary of the issue determine, of Available Cash (as
refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating
the disposition of your AIMCO Operating Partnership Agreement) generated by
partnership's assets. Your partner-
</TABLE>
S-68
<PAGE> 1111
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
ship has made distributions in the Partnership may adjust the annual the AIMCO Operating Partnership
past and is projected to make distribution rate on the Preferred during such quarter to the general
distributions in 1998. OP Units to the lower of (i) % partner, the special limited
plus the annual interest rate then partner and the holders of Common
applicable to U.S. Treasury notes OP Units on the record date
with a maturity of five years, and established by the general partner
(ii) the annual dividend rate on with respect to such quarter, in
the most recently issued AIMCO accordance with their respective
non-convertible preferred stock interests in the AIMCO Operating
which ranks on a parity with its Partnership on such record date.
Class H Cumulative Preferred Stock. Holders of any other Preferred OP
Such distributions will be Units issued in the future may have
cumulative from the date of origi- priority over the general partner,
nal issue. Holders of Preferred OP the special limited partner and
Units will not be entitled to holders of Common OP Units with
receive any distributions in excess respect to distributions of
of cumulative distributions on the Available Cash, distributions upon
Preferred OP Units. No interest, or liquidation or other distributions.
sum of money in lieu of interest, See "Per Share and Per Unit Data"
shall be payable in respect of any in the accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
Subject to the restrictions on There is no public market for the There is no public market for the
transferability required by Federal Preferred OP Units and the OP Units. The AIMCO Operating Part-
or state law, limited partner may Preferred OP Units are not listed nership Agreement restricts the
transfer his limited partnership on any securities exchange. The transferability of the OP Units.
interest to any person provided Preferred OP Units are subject to Until the expiration of one year
that: (i) such transfer is not in restrictions on transfer as set from the date on which an OP
contravention of your partnership's forth in the AIMCO Operating Unitholder acquired OP Units,
agreement of limited partnership, Partnership Agreement. subject to certain exceptions, such
(ii) a duly executed and OP Unitholder may not transfer all
acknowledged assignment has been Pursuant to the AIMCO Operating or any portion of its OP Units to
approved by the general partner, Partnership Agreement, until the any transferee without the consent
which approval shall be in its sole expiration of one year from the of the general partner, which
discretion and absolute power, and date on which a holder of Preferred consent may be withheld in its sole
(iii) the transferee represents in OP Units acquired Preferred OP and absolute discretion. After the
writing that it satisfies the Units, subject to certain expiration of one year, such
suitability requirements for lim- exceptions, such holder of
Preferred OP Units may
</TABLE>
S-69
<PAGE> 1112
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
ited partners. However, no transfer not transfer all or any portion of OP Unitholder has the right to
may occur if in light of the total its Preferred OP Units to any transfer all or any portion of its
of all transfers sold or exchanged transferee without the consent of OP Units to any person, subject to
within the period of twelve the general partner, which consent the satisfaction of certain
consecutive months prior there, may be withheld in its sole and conditions specified in the AIMCO
there might result a termination of absolute discretion. After the Operating Partnership Agreement,
your partnership for tax purposes expiration of one year, such including the general partner's
in the opinion of counsel. In order holders of Preferred OP Units has right of first refusal. See
for a transferee to be substituted the right to transfer all or any "Description of OP Units --
as a limited partner, in addition portion of its Preferred OP Units Transfers and Withdrawals" in the
to the above requirements: (1) the to any person, subject to the accompanying Prospectus.
assignee must execute an satisfaction of certain conditions
irrevocable power of attorney specified in the AIMCO Operating After the first anniversary of
appointing the general partner as Partnership Agreement, including becoming a holder of Common OP
the assignee's attorney-in-fact, the general partner's right of Units, an OP Unitholder has the
(2) an opinion of counsel must be first refusal. right, subject to the terms and
received by the general partner conditions of the AIMCO Operating
that such transfer does not violate After a one-year holding period, a Partnership Agreement, to require
applicable securities laws, (3) a holder may redeem Preferred OP the AIMCO Operating Partnership to
transfer fee must be paid, (4) the Units and receive in exchange redeem all or a portion of the
interest transferred must not be therefor, at the AIMCO Operating Common OP Units held by such party
less than one Unit or such lesser Partnership's option, (i) subject in exchange for a cash amount based
amount as the assignor owned and to the terms of any Senior Units, on the value of shares of Class A
(5) such other conditions as are cash in an amount equal to the Common Stock. See "Description of
set forth in your partnership's Liquidation Preference of the OP Units -- Redemption Rights" in
agreement of limited partnership Preferred OP Units tendered for the accompanying Prospectus. Upon
must be fulfilled. redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
There are no redemption rights Stock of AIMCO that pay an sole and absolute discretion but
associated with your units. aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-70
<PAGE> 1113
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership property. Additionally, we desire
to purchase units at a low price and you desire to sell units at a high price.
The general partner of your partnership makes no recommendation as to whether
you should tender or refrain from tendering your units. Such conflicts of
interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fee
for its services as general partner from your partnership but may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $94,152 in 1996, $96,106 in 1997 and $52,073 for the
first six months of 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the manager of your partnership
property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-71
<PAGE> 1114
YOUR PARTNERSHIP
GENERAL
Cedar Tree Investors Limited Partnership is a Kansas limited partnership
which raised net proceeds of approximately $2,550,000 in 1991 through a private
offering. The promoter for the private offering of your partnership was United
Investors Equity Services, Inc. Insignia acquired your partnership in December
1990. AIMCO acquired Insignia in October, 1998. There are currently a total of
67 limited partners of your partnership and a total of 75 units of your
partnership outstanding. Your partnership is in the business of owning and
managing residential housing. Currently, your partnership owns and manages the
single apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on June 14, 1991 for the purpose of owning and
operating a single apartment property located in Shawnee, Kansas, known as
"Cedar Tree Apartments." Your partnership's property consists of 344 apartment
units. There are 199 one-bedroom apartments and 144 two-bedroom apartments. The
total rentable square footage of your partnership's property is 231,040 square
feet. Your partnership's property had an average occupancy rate of approximately
92.44% in 1996 and 92.44% in 1997. The average annual rent per apartment unit is
approximately $5,235.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1990, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $94,152, $96,106 and $52,073, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2021
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-72
<PAGE> 1115
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $4,622,405, payable to FNMA, which bears interest at a rate of
6.43%. The mortgage debt is due in September, 2008. Your partnership's agreement
of limited partnership also allows the general partner of your partnership to
lend funds to your partnership. Currently, the general partner of your
partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. The audited financial statements have
been audited by Deloitte & Touche. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-73
<PAGE> 1116
Below is selected financial information for Cedar Tree Investors Limited
Partnership taken from the financial statements described above. See "Index to
Financial Statements."
<TABLE>
<CAPTION>
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
--------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents....... $ 533,978 $ 431,720 $ 499,946 $ 529,097 $ 622,570 $ 819,774 $ 839,896
Land & Building................. 6,997,097 6,846,756 6,898,133 6,796,085 6,726,542 6,523,009 6,429,734
Accumulated Depreciation........ (1,643,080) (1,366,066) (1,504,573) (1,227,559) (961,648) (715,535) (491,163)
Other Assets.................... 498,779 465,501 408,004 365,737 356,811 340,736 431,688
----------- ----------- ----------- ----------- ---------- ---------- ----------
Total Assets........... $ 6,386,775 $ 6,377,911 $ 6,301,510 $ 6,463,360 $6,744,275 $6,967,984 $7,210,155
=========== =========== =========== =========== ========== ========== ==========
Mortgage & Accrued Interest..... 4,660,170 4,711,190 4,647,993 4,734,411 4,777,285 4,816,798 4,852,655
Other Liabilities............... 246,842 157,495 213,913 155,813 244,486 202,926 154,659
----------- ----------- ----------- ----------- ---------- ---------- ----------
Total Liabilities...... $ 4,907,012 $ 4,868,685 $ 4,861,906 $ 4,890,224 $5,021,771 $5,019,724 $5,007,314
----------- ----------- ----------- ----------- ---------- ---------- ----------
Partners Capital (Deficit)...... $ 1,479,763 $ 1,509,226 $ 1,439,604 $ 1,573,136 $1,722,504 $1,948,260 $2,202,841
=========== =========== =========== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue..................... $ 971,036 $ 845,671 $1,815,531 $1,770,230 $1,723,740 $1,610,896 $1,614,882
Other Income....................... 62,460 60,004 141,140 130,237 145,911 160,731 85,545
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue............. $1,033,496 $ 905,675 $1,956,671 $1,900,467 $1,869,651 $1,771,627 $1,700,427
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses................. 342,065 315,635 777,678 748,824 796,744 614,028 558,951
General & Administrative........... 15,276 15,973 25,434 25,820 66,681 51,030 52,184
Depreciation....................... 138,507 138,507 277,013 265,911 246,113 224,372 208,515
Interest Expense................... 226,075 228,443 470,025 475,804 463,814 467,470 470,788
Property Taxes..................... 71,417 69,019 136,033 131,466 122,055 114,005 106,315
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses............ $ 793,340 $ 767,577 $1,686,183 $1,647,825 $1,695,407 $1,470,905 $1,396,753
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ 240,157 $ 138,099 $ 270,488 $ 252,642 $ 174,244 $ 300,722 $ 303,674
========== ========== ========== ========== ========== ========== ==========
</TABLE>
S-74
<PAGE> 1117
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $240,157 for the six months ended
June 30, 1998, compared to $138,099 for the six months ended June 30, 1997. The
increase in net income of $102,058, or 73.90% was primarily the result of an
increase in rental revenues offset by an increase in operating expenses. These
factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,033,496 for the six months ended June 30, 1998, compared to $905,675 for the
six months ended June 30, 1997, an increase of $127,821, or 14.11%. This was
primarily a result of increased average occupancy levels as well as increases in
rental rates.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $342,065 for the
six months ended June 30, 1998, compared to $315,635 for the six months ended
June 30, 1997, an increase of $26,430 or 8.37%. The increase is primarily due to
an increase in marketing and property management expenses. Management expenses
totaled $52,073 for the six months ended June 30, 1998, compared to $45,694 for
the six months ended June 30, 1997, an increase of $6,379, or 13.96%. The
increase resulted from an increase in rental revenues, as management fees are as
management fees are calculated based on a percentage of revenue.
General and Administrative Expenses
General and administrative expenses totaled $15,276 for the six months
ended June 30, 1998 compared to $15,973 for the six months ended June 30, 1997,
a decrease of $697.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $226,075 for the six months ended June 30, 1998, compared to
$228,443 for the six months ended June 30, 1997, a decrease of $2,368, or 1.04%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $270,488 for the year ended
December 31, 1997, compared to $252,642 for the year ended December 31, 1996.
The increase in net income of $17,846, or 7.06% was primarily the result of an
increase in rental revenues offset by an increase in operating expenses.
S-75
<PAGE> 1118
Revenues
Rental and other property revenues from the partnership's property totaled
$1,956,671 for the year ended December 31, 1997, compared to $1,900,467 for the
year ended December 31, 1996, an increase of $56,204, or 2.96%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $777,678 for the
year ended December 31, 1997, compared to $748,824 for the year ended December
31, 1996, an increase of $28,854 or 3.85%. Management expenses totaled $96,106
for the year ended December 31, 1997, compared to $94,152 for the year ended
December 31, 1996, an increase of $1,954, or 2.08%.
General and Administrative Expenses
General and administrative expenses totaled $25,434 for the year ended
December 31, 1997 compared to $25,820 for the year ended December 31, 1996, a
decrease of $386 or 1.49%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $470,025 for the year ended December 31, 1997, compared to
$475,804 for the year ended December 31, 1996, a decrease of $5,779, or 1.21%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $252,642 for the year ended
December 31, 1996, compared to $174,244 for the year ended December 31, 1995.
The increase in net income of $78,398, or 44.99% was primarily the result of a
decrease in operating expenses and an increase in revenues. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,900,467 for the year ended December 31, 1996, compared to $1,869,651 for the
year ended December 31, 1995, an increase of $30,816, or 1.65%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $748,824 for the
year ended December 31, 1996, compared to $796,744 for the year ended December
31, 1995, a decrease of $47,920 or 6.01%. The decrease is primarily due to a
decrease in maintenance expenses due to an extensive exterior painting project
at the property in the fourth quarter of 1995. Management expenses totaled
$94,152 for the year ended December 31, 1996, compared to $91,253 for the year
ended December 31, 1995, an increase of $2,899, or 3.18%.
General and Administrative Expenses
General and administrative expenses totaled $25,820 for the year ended
December 31, 1996 compared to $66,681 for the year ended December 31, 1995, a
decrease of $40,861 or 61.28%. The decrease is primarily due to reclassing on
the financial statements of certain accounts from General and Administrative to
Operating. Grouped the same way as in 1995, 1996 General and Administrative
expense would be $65,555.
S-76
<PAGE> 1119
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $475,804 for the year ended December 31, 1996, compared to
$463,814 for the year ended December 31, 1995, an increase of $11,990 or 2.59%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $533,978 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the doing of any act or the failure to do any
act by the general partner, which does not constitute fraud, gross negligence or
willful malfeasance as determined a court of competent jurisdiction, in
pursuance of the authority granted to promote the interests of your partnership,
the effect of which causes or results in loss or damage to your partnership, if
done in good faith, will not subject the general partner or its affiliates to
any liability. As a result, unitholders might have a more limited right of
action in certain circumstances than they would have in the absence of such a
provision in your partnership's agreement of limited partnership. The general
partner of your partnership is owned by AIMCO. See "Conflicts of Interest".
Your partnership will indemnify and hold harmless the general partners and
their affiliates from any claim, loss, expense, liability, action or damage
resulting from any act or omission done in good faith which does not constitute
fraud, gross negligence or willful malfeasance as determined by a court of
competent jurisdiction, in pursuance of the authority granted to promote the
interests of your partnership, including, without limitation, reasonable fees
and expenses of attorneys engaged by the general partner in defense of such act
or omission and other reasonable costs and expenses of litigation and appeal.
All costs and expenses incurred in defending any proceeding or action or
otherwise will be advanced by your partnership. As part of its assumption of
liabilities in the consolidation, AIMCO will indemnify the general partner of
your partnership and their affiliates for periods prior to and following the
consolidation to the extent of the indemnity under the terms of your
partnership's agreement of limited partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter. The
original cost per unit was $83,607.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $7,330.00
1995........................................................ $5,280.00
1996........................................................ $5,319.86
1997........................................................ $5,333.06
1998 (through June 30)...................................... $2,640.00
</TABLE>
S-77
<PAGE> 1120
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $10,000
1995........................................................ 15,000
1996........................................................ 15,756
1997........................................................ 15,816
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... $91,253
1996........................................... 94,152
1997........................................... 96,106
1998 (through June 30)......................... 52,073
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-78
<PAGE> 1121
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Cedar Tree Investors Limited Partnership at
December 31, 1997, 1996 and 1995 and for the four years in the period ended
December 31, 1997, appearing in this Prospectus Supplement have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
S-79
<PAGE> 1122
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-8
Balance Sheet as of December 31, 1997....................... F-9
Statements of Operations for the years ended December 31,
1997 and 1996............................................. F-10
Statements of Changes in Partners' Capital (Deficit) for the
years ended December 31, 1997 and 1996.................... F-11
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-12
Notes to Financial Statements............................... F-13
Balance Sheet as of December 31, 1996....................... F-18
Statements of Operations for the years ended December 31,
1996 and 1995............................................. F-19
Statements of Changes in Partners' Capital (Deficit) for the
years ended December 31, 1996 and 1995.................... F-20
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-21
Notes to Financial Statements............................... F-22
Independent Auditors' Report................................ F-25
Balance Sheet as of December 31, 1995....................... F-26
Statements of Operations for the years ended December 31,
1995 and 1994............................................. F-27
Statements of Changes in Partners' Capital (Deficit) for the
years ended December 31, 1995 and 1994.................... F-28
Statements of Cash Flows for the years ended December 31,
1995 and 1994............................................. F-29
Notes to Financial Statements............................... F-30
</TABLE>
F-1
<PAGE> 1123
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 533,978
Receivables and Deposits.................................... 84,860
Investments................................................. 0
Restricted Escrows.......................................... 218,275
Other Assets................................................ 195,644
Investment Property:
Land...................................................... $ 1,032,000
Building and related personal property.................... 5,965,098
-----------
6,997,098
Less: Accumulated depreciation............................ (1,643,080) 5,354,018
----------- ----------
Total Assets:..................................... $6,386,775
==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 2,832
Other Accrued Liabilities................................... 61,133
Property Taxes Payable...................................... 139,434
Tenant Security Deposits.................................... 81,208
Notes Payable............................................... 4,622,405
Partners' Capital........................................... 1,479,763
----------
Total Liabilities and Partners' Capital........... $6,386,775
==========
</TABLE>
F-2
<PAGE> 1124
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
---------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $ 971,036 $845,671
Other Income.............................................. 62,460 60,004
(Gain) Loss on Disp of Property........................... --
Casualty Gain/Loss........................................ -- --
---------- --------
Total Revenues:................................... 1,033,496 905,675
Expenses:
Operating Expenses........................................ 342,065 315,635
General and Administrative Expenses....................... 15,276 15,973
Depreciation Expense...................................... 138,507 138,507
Interest Expense.......................................... 226,075 228,443
Property Tax Expense...................................... 71,417 69,019
---------- --------
Total Expenses:................................... 793,340 767,577
Net (Income) Loss................................. $ 240,156 $138,098
========== ========
</TABLE>
F-3
<PAGE> 1125
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
A KANSAS LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ 240,157 $ 138,099
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:...................... -- --
Depreciation and Amortization............................. 138,507 138,507
Changes in accounts:...................................... -- --
Receivables and deposits and other assets.............. (109,829) (1,721)
Accounts Payable and accrued expenses.................. 70,694 1,682
--------- ---------
Net cash provided by (used in) operating
activities...................................... 339,529 276,567
--------- ---------
Investing Activities
Property improvements and replacements.................... (98,965) (50,671)
Net (increase)/decrease in restricted escrows............. 19,054 (34,865)
--------- ---------
Net cash provided by (used in) investing activities....... (79,911) (85,536)
--------- ---------
Financing Activities
Payments on mortgage...................................... (25,588) (23,221)
Partners' Distributions................................... (199,998) (202,009)
--------- ---------
Net cash provided by (used in) financing activities....... (225,586) (225,230)
--------- ---------
Net increase (decrease) in cash and cash equivalents...... 34,032 (34,199)
Cash and cash equivalents at beginning of year.... 499,946 465,919
--------- ---------
Cash and cash equivalents at end of period........ $ 533,978 $ 431,720
========= =========
</TABLE>
F-4
<PAGE> 1126
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Cedar Tree Investors
Limited Partnership (a Kansas Limited Partnership) as of June 30, 1998 and for
the six months ended June 30, 1998 and 1997 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and all such adjustments are of a recurring
nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 1127
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND INDEPENDENT AUDITORS' REPORT
F-6
<PAGE> 1128
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
---------
<S> <C>
Independent Auditors' Report................................ F-8
Financial Statements as of December 31, 1997 and for the
Years Ended December 31, 1997 and 1996:
Balance Sheet............................................. F-9
Statements of Operations.................................. F-10
Statements of Changes in Partners' Capital (Deficit)...... F-11
Statements of Cash Flows.................................. F-12
Notes to Financial Statements............................. F-13 - 15
</TABLE>
F-7
<PAGE> 1129
INDEPENDENT AUDITORS' REPORT
To the Partners of
Cedar Tree Investors Limited Partnership
(A Kansas Limited Partnership):
We have audited the accompanying balance sheet of Cedar Tree Investors
Limited Partnership (a Kansas Limited Partnership) (the "Partnership") as of
December 31, 1997, and the related statements of operations, changes in
partners' capital (deficit), and cash flows for each of the two years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1997, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 17, 1998
(except for Note 6, as to which the date is March 17, 1998)
F-8
<PAGE> 1130
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 499,946
Receivables and deposits.................................... 102,427
Restricted escrows.......................................... 237,329
Other assets (Note 1)....................................... 68,248
Investment properties -- at cost (Notes 1 and 2):
Land...................................................... $ 1,032,000
Building and related personal property.................... 5,866,133
-----------
6,898,133
Less accumulated depreciation............................... (1,504,573) 5,393,560
----------- ----------
Total Assets...................................... $6,301,510
==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable.......................................... $ 14,977
Tenant security deposits payable.......................... 74,723
Accrued property taxes.................................... 68,017
Other liabilities......................................... 56,196
Mortgage note payable (Note 2)............................ 4,647,993
Partners' Capital (Deficit) (Note 3):
General partner........................................... $ (6,713)
Limited partners (75 units issued and outstanding)........ 1,446,317 1,439,604
----------- ----------
Total Liabilities and Partners' Capital........... $6,301,510
==========
</TABLE>
See notes to financial statements.
F-9
<PAGE> 1131
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Rental income............................................. $1,815,531 $1,770,230
Other income.............................................. 141,140 130,237
---------- ----------
Total revenues......................................... 1,956,671 1,900,467
---------- ----------
Expenses:
Operating................................................. 777,678 748,824
General and administrative................................ 25,434 25,820
Depreciation.............................................. 277,013 265,911
Interest.................................................. 470,025 475,804
Property taxes............................................ 136,033 131,466
---------- ----------
Total expenses......................................... 1,686,183 1,647,825
---------- ----------
Net Income (Note 5)......................................... $ 270,488 $ 252,642
========== ==========
Net Income Allocated to General Partner (1%)................ $ 2,705 $ 2,526
Net Income Allocated to Limited Partners (99%).............. 267,783 250,116
---------- ----------
Total............................................. $ 270,488 $ 252,642
========== ==========
Net Income Per Limited Partnership Unit -- Based on 75
weighted average limited partnership units during the
years ended December 31, 1997 and 1996.................... $ 3,570 $ 3,335
========== ==========
</TABLE>
See notes to financial statements.
F-10
<PAGE> 1132
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
LIMITED
PARTNERSHIP GENERAL LIMITED
UNITS PARTNER PARTNERS TOTAL
----------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Partners' Capital (Deficit), December 31,
1995....................................... 75 $(3,894) $1,726,398 $1,722,504
Partners' distributions.................... -- (4,010) (398,000) (402,010)
Net income for the year ended
December 31, 1996....................... -- 2,526 250,116 252,642
------- ------- ---------- ----------
Partners' Capital (Deficit), December 31,
1996....................................... 75 (5,378) 1,578,514 1,573,136
Partners' distributions.................... -- (4,040) (399,980) (404,020)
Net income for the year ended
December 31, 1997....................... -- 2,705 267,783 270,488
------- ------- ---------- ----------
Partners' Capital (Deficit), December 31,
1997....................................... 75 $(6,713) $1,446,317 $1,439,604
======= ======= ========== ==========
</TABLE>
See notes to financial statements.
F-11
<PAGE> 1133
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 270,488 $ 252,642
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 277,013 265,911
Amortization of loan costs............................. 15,351 15,351
Change in operating assets and liabilities:
Receivables and deposits............................. (11,905) 13,599
Other assets......................................... 135 (1,491)
Accounts payable..................................... 4,401 (50,798)
Accrued property taxes............................... 2,284 4,706
Tenant security deposits payable..................... 11,545 (731)
Other liabilities.................................... 1,049 (41,532)
--------- ---------
Net cash provided by operating activities......... 570,361 457,657
--------- ---------
Cash Flows From Investing Activities:
Property improvements and replacements.................... (102,048) (69,543)
Net receipts from (deposits to) restricted escrows........ 17,331 (35,654)
--------- ---------
Net cash used in investing activities............. (84,717) (105,197)
--------- ---------
Cash Flows From Financing Activities:
Principal payments on mortgage note payable............... (47,597) (43,192)
Partners' distributions................................... (404,020) (402,010)
--------- ---------
Net cash used in financing activities............. (451,617) (445,202)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........ 34,027 (92,742)
Cash and Cash Equivalents, Beginning of Year................ 465,919 558,661
--------- ---------
Cash and Cash Equivalents, End of Year...................... $ 499,946 $ 465,919
========= =========
Supplemental Disclosure of Cash Flow Information -- Cash
paid during the year for interest......................... $ 455,730 $ 459,816
========= =========
</TABLE>
See notes to financial statements.
F-12
<PAGE> 1134
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership)
(the "Partnership") was formed to acquire, own and operate Cedar Tree
Apartments, a 344-unit multifamily residential complex located in Shawnee,
Kansas. The general partner of the Partnership is United Investors Real Estate,
Inc., a Delaware corporation.
Basis of Accounting
The accompanying financial statements of the Partnership are prepared on
the accrual basis and, therefore, revenue is recorded as earned and costs and
expenses are recorded as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash
Cash and cash equivalents includes cash on hand and in banks, money market
funds and certificates of deposit with original maturities of less than three
months.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the leases and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
Income Taxes
For income tax purposes, the Partnership reports revenue and costs and
expenses on the accrual method. No income tax provisions have been shown in the
accompanying statements of operations since the partners are taxed individually.
Investment Properties
Investment properties are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated useful
lives of 15 to 40 years for buildings and improvements and 5 to 12 years for
furniture and fixtures.
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets.
Other Assets
Included in other assets are deferred charges which consist of loan costs
totaling $153,506 which are amortized over the term of the related note.
Accumulated amortization as of December 31, 1997 was $98,532.
F-13
<PAGE> 1135
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Advertising
The Partnership expenses the cost of advertising as incurred. Advertising
expense, included in operating expenses, was $48,608 and $25,589 for the years
ended December 31, 1997 and 1996, respectively.
Reclassifications
Certain reclassifications of prior year balances have been made to conform
to the current year's presentation.
2. MORTGAGE NOTE PAYABLE
The mortgage note payable consists of a 10-year nonrecourse note
collateralized by Cedar Tree Apartments, payable in monthly installments of
$41,944, including interest. The interest rate is fixed at 9.75% per year. The
mortgage note payable matures on September 1, 2001. Scheduled maturities of
principal are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1998..................................................... $ 52,450
1999..................................................... 57,799
2000..................................................... 63,693
2001..................................................... 4,474,051
----------
Total.................................................... $4,647,993
==========
</TABLE>
3. PARTNERS' EQUITY
Allocations of Profits and Losses
In accordance with the partnership agreement, all profits and losses are to
be allocated 1% to the general partner and 99% to the limited partners.
Distributions
The Partnership allocates distributions 1% to the general partner and 99%
to the limited partners. On February 15, 1998, the Partnership paid a
distribution to the partners of $100,000.
4. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1996, the Partnership paid the
following amounts to affiliates of the general partner:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Property management fees................................. $96,106 $94,152
Reimbursement of expenses................................ 15,816 15,756
</TABLE>
In addition, affiliates of the general partner were paid $6,844 and $6,537
during 1997 and 1996, respectively, for construction oversight costs incurred in
conjunction with the Partnership's capital improvement and major repair
projects.
For the period from January 1, 1996 to August 31, 1997, the Partnership
insured Cedar Tree Apartments under a master policy through an agency and
insurer unaffiliated with the general partner. An affiliate of the general
partner acquired, in the acquisition of a business, certain financial
obligations from an insurance
F-14
<PAGE> 1136
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the general partner,
who received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums that accrued to the benefit of the affiliate of
the general partner by virtue of the agent's obligations as not significant.
5. PARTNER TAX INFORMATION
The following is a reconciliation between net income as reported in the
financial statements and Federal taxable income allocated to the partners in the
Partnership's information returns for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net income as reported................................. $270,488 $252,642
Add (deduct):
Deferred revenue..................................... 1,905 (39,988)
Depreciation differences............................. 11,077 5,102
Other................................................ 200 300
-------- --------
Federal taxable income................................. $283,670 $218,056
======== ========
Federal taxable income per limited partnership unit.... $ 3,744 $ 2,878
======== ========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net assets as reported.............................. $1,439,604 $1,573,136
Differences in basis of assets and liabilities:
Deferred revenue.................................. 4,911 3,006
Accumulated depreciation.......................... (9,377) (20,454)
Syndication costs................................. 213,094 213,094
Other............................................. 500 300
---------- ----------
Net assets -- tax basis............................. $1,648,732 $1,769,082
========== ==========
</TABLE>
6. SUBSEQUENT EVENTS
On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into
an agreement to merge its national residential property management operations,
and its controlling interest in Insignia Properties Trust, with Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust. The closing, which is anticipated to happen in the third
quarter of 1998, is subject to customary conditions, including government
approvals and the approval of Insignia's shareholders. If the closing occurs,
AIMCO will then control the general partner of the Partnership.
F-15
<PAGE> 1137
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND INDEPENDENT AUDITORS' REPORT
F-16
<PAGE> 1138
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Financial Statements as of December 31, 1996 and for the
Years Ended December 31, 1996 and 1995:
Balance Sheet............................................. F-18
Statements of Operations.................................. F-19
Statements of Changes in Partners' Capital (Deficit)...... F-20
Statements of Cash Flows.................................. F-21
Notes to Financial Statements............................. F-22 - F-24
</TABLE>
F-17
<PAGE> 1139
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 465,919
Restricted cash -- tenant security deposits................. 63,178
Accounts receivable......................................... 3,347
Prepaid expenses............................................ 13,408
Escrows for taxes and insurance............................. 23,997
Restricted escrows.......................................... 254,660
Deferred charges -- net of accumulated amortization of
$83,181................................................... 70,325
Apartment properties -- at cost (Notes 1 and 2):
Land...................................................... $ 1,032,000
Buildings, improvements and related personal property..... 5,764,085
-----------
6,796,085
Less accumulated depreciation............................... (1,227,559) 5,568,526
----------- ----------
Total Assets...................................... $6,463,360
==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable............................................ $ 10,576
Accrued and other liabilities:
Property taxes............................................ $ 65,733
Tenant security deposits.................................. 63,178
Interest.................................................. 38,821
Unearned rental collections............................... 3,006
Other..................................................... 13,320 184,058
-----------
Mortgage note payable (Note 2).............................. 4,695,590
Partners' Capital (Deficit) (Note 3):
General partner............................................. (5,378)
Limited partners (75 units issued and outstanding).......... 1,578,514 1,573,136
----------- ----------
Total Liabilities and Partners' Capital........... $6,463,360
==========
</TABLE>
See notes to financial statements.
F-18
<PAGE> 1140
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Rentals................................................... $1,770,230 $1,723,740
Other income.............................................. 111,766 100,696
---------- ----------
Total revenues......................................... 1,881,996 1,824,436
---------- ----------
Expenses:
Operating................................................. 317,257 294,010
Administrative............................................ 65,555 66,681
Property management fees (Note 4)......................... 94,152 91,253
Advertising and rental incentives......................... 58,773 80,013
Maintenance............................................... 198,565 277,823
Depreciation.............................................. 265,911 246,113
Amortization of deferred charges.......................... 15,351 15,350
Interest.................................................. 460,453 463,814
Property taxes............................................ 131,466 122,055
Insurance................................................. 40,342 38,295
---------- ----------
Total expenses......................................... 1,647,825 1,695,407
---------- ----------
Income From Property Operations............................. 234,171 129,029
Interest Income............................................. 18,471 45,215
---------- ----------
Net Income (Note 5)......................................... $ 252,642 $ 174,244
========== ==========
Net Income Allocated to General Partner (1%)................ $ 2,526 $ 1,742
Net Income Allocated to Limited Partners (99%).............. 250,116 172,502
---------- ----------
Total............................................. $ 252,642 $ 174,244
========== ==========
Net Income Per Limited Partnership Unit -- Based on 75
weighted average limited partnership units during the
years ended December 31, 1996 and 1995.................... $ 3,335 $ 2,300
========== ==========
</TABLE>
See notes to financial statements.
F-19
<PAGE> 1141
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIMITED
PARTNERSHIP GENERAL LIMITED
UNITS PARTNER PARTNERS TOTAL
----------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Partners' Capital (Deficit), December 31,
1994....................................... 75 $(1,636) $1,949,896 $1,948,260
Partners' distributions.................... -- (4,000) (396,000) (400,000)
Net income for the year ended December 31,
1995.................................... -- 1,742 172,502 174,244
---- ------- ---------- ----------
Partners' Capital (Deficit), December 31,
1995....................................... 75 (3,894) 1,726,398 1,722,504
Partners' distributions.................... -- (4,010) (398,000) (402,010)
Net income for the year ended December 31,
1996.................................... -- 2,526 250,116 252,642
---- ------- ---------- ----------
Partners' Capital (Deficit), December 31,
1996....................................... 75 $(5,378) $1,578,514 $1,573,136
==== ======= ========== ==========
</TABLE>
See notes to financial statements.
F-20
<PAGE> 1142
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $252,642 $174,244
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 265,911 246,113
Amortization of deferred charges....................... 15,351 15,350
Change in operating assets and liabilities:
Restricted cash...................................... 731 (13,329)
Accounts receivable.................................. (1,357) 1,712
Prepaid expenses..................................... (1,491) (327)
Escrow deposits for taxes and insurance.............. 14,225 (2,134)
Accounts payable..................................... (50,798) 31,775
Accrued property taxes............................... 4,706 4,717
Tenant security deposits liability................... (731) 8,724
Accrued interest..................................... 318 (318)
Unearned rental collections.......................... (39,989) (9,967)
Other liabilities.................................... (1,861) 6,311
-------- --------
Net cash provided by operating activities......... 457,657 462,871
-------- --------
Cash Flows From Investing Activities:
Property improvements and replacements.................... (69,543) (203,533)
Deposits to restricted escrows............................ (68,800) (78,850)
Receipts from restricted escrows.......................... 33,146 48,174
-------- --------
Net cash used in investing activities............. (105,197) (234,209)
-------- --------
Cash Flows From Financing Activities:
Principal payments on mortgage note payable............... (43,192) (39,195)
Partners' distributions................................... (402,010) (400,000)
-------- --------
Net cash used in financing activities............. (445,202) (439,195)
-------- --------
Net Decrease in Cash and Cash Equivalents................... (92,742) (210,533)
Cash and Cash Equivalents, Beginning of Year................ 558,661 769,194
-------- --------
Cash and Cash Equivalents, End of Year...................... $465,919 $558,661
======== ========
Supplemental Disclosure of Cash Flow Information -- Cash
paid during the year for interest......................... $459,816 $464,132
======== ========
</TABLE>
See notes to financial statements.
F-21
<PAGE> 1143
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership)
(the "Partnership") was formed to acquire, own and operate Cedar Tree
Apartments, a 344-unit multifamily residential complex located in Shawnee,
Kansas. The general partner of the Partnership is United Investors Real Estate,
Inc., a Delaware corporation.
Basis of Accounting
The accompanying financial statements of the Partnership are prepared on
the accrual basis and, therefore, revenue is recorded as earned and costs and
expenses are recorded as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash
Cash and cash equivalents includes cash on hand and in banks, money market
funds and certificates of deposit with original maturities of less than three
months.
Restricted Cash -- Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are considered restricted cash. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged its space
and is current on its rental payments.
Income Taxes
For income tax purposes, the Partnership reports revenue and costs and
expenses on the accrual method. No income tax provisions have been shown in the
accompanying statements of operations since the partners are taxed individually.
Apartment Properties
Apartment properties are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated useful
lives of 15 to 40 years for buildings and improvements and 5 to 12 years for
furniture and fixtures.
During 1995, the Partnership adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to
be recognized for long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets' carrying amounts. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount. The adoption of
SFAS No. 121 had no effect on the Partnership's financial statements.
F-22
<PAGE> 1144
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Charges
Deferred charges consist of loan costs which are amortized over the term of
the related note.
Advertising
The Partnership expenses the cost of advertising as incurred. Advertising
expense, included in operating expenses, was $25,589 and $18,647 for the years
ended December 31, 1996 and 1995, respectively.
Reclassifications
Certain reclassifications of prior year balances have been made to conform
to the current year's presentation.
2. MORTGAGE NOTE PAYABLE
The mortgage note payable consists of a 30-year nonrecourse note
collateralized by Cedar Tree Apartments, payable in monthly installments of
$41,944, including interest. The interest rate is fixed at 9.75% per year.
Scheduled maturities of principal are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1997..................................................... $ 47,597
1998..................................................... 52,450
1999..................................................... 57,799
2000..................................................... 63,693
2001..................................................... 70,189
Thereafter............................................... 4,403,862
----------
Total.......................................... $4,695,590
==========
</TABLE>
3. PARTNERS' EQUITY
Allocations of Profits and Losses
In accordance with the partnership agreement, all profits and losses are to
be allocated 1% to the general partner and 99% to the limited partners.
Distributions
The Partnership allocates distributions 1% to the general partner and 99%
to the limited partners. Subsequent to December 31, 1996, the Partnership paid a
distribution to the partners of $101,000 on February 18, 1997.
4. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1995, the Partnership paid the
following amounts to affiliates of the general partner:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Property management fees................................. $94,152 $91,253
Reimbursement of expenses................................ 15,756 15,000
</TABLE>
F-23
<PAGE> 1145
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, affiliates of the general partner were paid $6,537 and $20,256
during 1996 and 1995, respectively, for construction oversight costs incurred in
conjunction with the Partnership's capital improvement and major repair
projects.
The Partnership insures Cedar Tree Apartments under a master policy through
an agency and insurer unaffiliated with the general partner. An affiliate of the
general partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the financial
obligations to the affiliate of the general partner, who receives payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums accruing to the benefit of the affiliate of the general partner by
virtue of the agent's obligations is not significant.
5. PARTNER TAX INFORMATION
The following is a reconciliation between net income as reported in the
financial statements and Federal taxable income allocated to the partners in the
Partnership's information returns for the years ended December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income as reported.............................. $ 252,642 $ 174,244
Add (deduct):
Deferred revenue.................................. (39,988) (9,968)
Depreciation differences.......................... 5,102 (4,330)
Other............................................. 300 --
---------- ----------
Federal taxable income.............................. $ 218,056 $ 159,946
========== ==========
Federal taxable income per limited partnership
unit.............................................. $ 2,878 $ 2,111
========== ==========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net assets as reported.............................. $1,573,136 $1,722,504
Differences in basis of assets and liabilities:
Deferred revenue.................................. 3,006 42,994
Accumulated depreciation.......................... (20,454) (25,556)
Syndication costs................................. 213,094 213,094
Other............................................. 300 --
---------- ----------
Net assets -- tax basis............................. $1,769,082 $1,953,036
========== ==========
</TABLE>
F-24
<PAGE> 1146
INDEPENDENT AUDITORS' REPORT
To the Partners of
Cedar Tree Investors Limited Partnership
(A Kansas Limited Partnership)
We have audited the accompanying balance sheet of Cedar Tree Investors
Limited Partnership (A Kansas Limited Partnership) (the "Partnership") as of
December 31, 1995, and the related statements of operations, changes in
partners' capital (deficit), and cash flows for each of the two years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1995, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 21, 1996
(February 26, 1996 as to the second paragraph of Note 3)
F-25
<PAGE> 1147
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
Cash and Cash Equivalents................................... $ 558,661
Restricted Cash -- Tenant Security Deposits................. 63,909
Accounts Receivable......................................... 1,990
Prepaid Expenses............................................ 11,917
Escrows for Taxes and Insurance............................. 38,222
Restricted Escrows.......................................... 219,006
Deferred Charges -- Net of accumulated amortization of
$67,830................................................... 85,676
Apartment Properties -- At cost (Notes 1 and 2):
Land...................................................... 1,032,000
Buildings, improvements and related personal property..... 5,694,542
----------
6,726,542
Less accumulated depreciation............................. (961,648) 5,764,894
---------- ----------
Total Assets...................................... $6,774,275
==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable.......................................... $ 61,374
Accrued and other liabilities:
Property taxes............................................ $ 61,027
Tenant security deposits.................................. 63,909
Interest.................................................. 38,503
Unearned rental collections............................... 42,995
Other..................................................... 15,181 221,615
----------
Mortgage note payable (Note 2)............................ 4,738,782
Partners' Capital (Deficit) (Note 3):
General partner........................................... (3,894)
Limited partners (75 units issued and outstanding)........ 1,726,398 1,722,504
---------- ----------
Total Liabilities and Partners' Capital........... $6,744,275
==========
</TABLE>
See notes to financial statements
F-26
<PAGE> 1148
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenues:
Rentals................................................... $1,723,740 $1,610,896
Other income.............................................. 100,696 134,554
---------- ----------
Total revenues......................................... 1,824,436 1,745,450
Expenses:
Operating................................................. 294,010 271,952
Administrative............................................ 66,681 51,030
Property management fees (Note 4)......................... 91,253 87,451
Advertising and rental incentives......................... 80,013 55,620
Maintenance............................................... 277,823 148,239
Depreciation.............................................. 246,113 224,372
Amortization of deferred charges.......................... 15,350 15,360
Interest.................................................. 463,814 467,470
Property taxes............................................ 122,055 114,005
Insurance................................................. 38,295 35,406
---------- ----------
Total expenses......................................... 1,695,407 1,470,905
---------- ----------
Income From Property Operations............................. 129,029 274,545
Interest Income............................................. 45,215 26,177
---------- ----------
Net Income (Note 5)......................................... $ 174,244 $ 300,722
========== ==========
Net Income Allocated to General Partner (1%)................ $ 1,742 $ 3,007
Net Income Allocated to Limited Partners (99%).............. 172,502 297,715
---------- ----------
$ 174,244 $ 300,722
========== ==========
Net Income Per Limited Partnership Unit --
Based on 75 weighted average limited partnership units
during the years ended December 31, 1995 and 1994...... $ 2,300 $ 3,970
========== ==========
</TABLE>
See notes to financial statements.
F-27
<PAGE> 1149
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
LIMITED
PARTNERSHIP GENERAL LIMITED
UNITS PARTNER PARTNERS TOTAL
----------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Partners' Capital, December 31, 1993......... 75 $ 910 $2,201,931 $2,202,841
Partners' distributions.................... -- (5,553) (549,750) (555,303)
Net income for the year ended December 31,
1994.................................... -- 3,007 297,715 300,722
------ ------- ---------- ----------
Partners' Capital (Deficit), December 31,
1994....................................... 75 (1,636) 1,949,896 1,948,260
Partners' distributions.................... -- (4,000) (396,000) (400,000)
Net income for the year ended December 31,
1995.................................... -- 1,742 172,502 174,244
------ ------- ---------- ----------
Partners' Capital (Deficit), December 31,
1995....................................... 75 $(3,894) $1,726,398 $1,722,504
====== ======= ========== ==========
</TABLE>
See notes to financial statements.
F-28
<PAGE> 1150
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 174,244 $ 300,722
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 246,113 224,372
Amortization of deferred charges....................... 15,350 15,360
Change in operating assets and liabilities:
Due from affiliate of general partner................ -- 157,907
Restricted cash...................................... (13,329) 2,798
Accounts receivable.................................. 1,712 (590)
Prepaid expenses..................................... (327) (2,422)
Escrow deposits for taxes and insurance.............. (2,134) (11,573)
Other assets......................................... -- 1,070
Restricted escrows................................... (30,676) (68,800)
Accounts payable..................................... 31,775 11,120
Accrued property taxes............................... 4,717 3,153
Tenant security deposits liability................... 8,724 1,807
Accrued interest..................................... (318) (289)
Unearned rental collections.......................... (9,967) 34,081
Other liabilities.................................... 6,311 (1,894)
--------- ---------
Net cash provided by operating activities......... 432,195 666,822
--------- ---------
Cash Flows From Investing Activities --
Property improvements and replacements.................... (203,533) (93,275)
--------- ---------
Cash Flows From Financing Activities:
Principal payments on mortgage notes payable.............. (39,195) (35,568)
Partners' distributions................................... (400,000) (555,303)
--------- ---------
Net cash used in financing activities............. (439,195) (590,871)
--------- ---------
Net Decrease in Cash........................................ (210,533) (17,324)
Cash, Beginning of Year..................................... 769,194 786,518
--------- ---------
Cash, End of Year........................................... $ 558,661 $ 769,194
========= =========
Supplemental Disclosure of Cash Flow Information -- Cash
paid during the year for interest......................... $ 464,132 $ 467,759
========= =========
</TABLE>
See notes to financial statements.
F-29
<PAGE> 1151
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership) was
formed to acquire, own and operate Cedar Tree Apartments, a 344-unit multifamily
residential complex located in Shawnee, Kansas. The general partner of the
Partnership is United Investors Real Estate, Inc., a Delaware corporation.
Basis of Accounting
The accompanying financial statements of the Partnership are prepared on
the accrual basis and, therefore, revenue is recorded as earned and costs and
expenses are recorded as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash
Cash and cash equivalents includes cash on hand and in banks, money market
funds and certificates of deposit with original maturities of less than three
months.
Restricted Cash -- Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are considered restricted cash. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged its space
and is current on its rental payments.
Income Taxes
For income tax purposes, the Partnership reports revenue and costs and
expenses on the accrual method. No income tax provisions have been shown in the
accompanying statements of operations since the partners are taxed in their
individual capacities.
Apartment Properties
Apartment properties are stated at cost less accumulated depreciation.
Depreciation is computed using straight-line methods over estimated useful lives
of 15 to 40 years for buildings and improvements and 5 to 12 years for furniture
and fixtures.
During 1995, the Partnership adopted FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires impairment losses to be recognized for long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the assets' carrying
amounts. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. The adoption of FASB No. 121 had no effect on the
Partnership's financial statements.
Deferred Charges
Deferred charges consist of loan costs which are amortized over the terms
of the related notes.
F-30
<PAGE> 1152
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Advertising
The Partnership expenses the cost of advertising as incurred. Advertising
expense, included in operating expenses, was $18,647 and $17,759 for the years
ended December 31, 1995 and 1994, respectively.
Fair Value
In 1995, the Partnership implemented Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosure of fair value information about financial instruments for
which it is practicable to estimate that value. The carrying amount of the
Partnership's cash and cash equivalents approximates fair value due to
short-term maturities. The Partnership estimates the fair value of its fixed
rate mortgages by discounted cash flow analysis, based on estimated borrowing
rates currently available to the Partnership.
Reclassifications
Certain reclassifications of prior year balances have been made to conform
to the current year presentation.
2. MORTGAGE NOTE PAYABLE
The mortgage note payable consists of a 10-year nonrecourse note
collateralized by Cedar Tree Apartments, payable in monthly installments of
$41,944, including interest. The interest rate is fixed at 9.75% per year.
Scheduled maturities of principal are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1996..................................................... $ 43,192
1997..................................................... 47,597
1998..................................................... 52,450
1999..................................................... 57,799
2000..................................................... 63,693
Thereafter............................................... 4,474,051
----------
Total.......................................... $4,738,782
==========
</TABLE>
The estimated fair value of the Partnership's aggregate debt is
approximately $5.1 million. This value represents a general approximation of
possible value and is not necessarily indicative of the amounts the Partnership
may pay in actual market transactions.
3. PARTNERS' EQUITY
Allocations of Profits and Losses
In accordance with the partnership agreement, all profits and losses are to
be allocated 1% to the general partner and 99% to the limited partners.
Distributions
The Partnership allocates distributions 1% to the general partner and 99%
to the limited partners. Subsequent to December 31, 1995, the Partnership paid a
distribution to the partners of $100,000 on February 26, 1996.
F-31
<PAGE> 1153
CEDAR TREE INVESTORS LIMITED PARTNERSHIP
(A KANSAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995 and 1994, the Partnership paid the
following amounts to affiliates of the general partner:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Property management fees................................. $91,253 $87,451
Reimbursement of expenses................................ 15,000 10,000
</TABLE>
The Partnership insures Cedar Tree Apartments under a master policy through
an agency and insurer unaffiliated with the general partner. An affiliate of the
general partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the financial
obligations to the affiliate of the general partner, who receives payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums accruing to the benefit of the affiliate of the general partner by
virtue of the agent's obligations is not significant.
5. PARTNER TAX INFORMATION
The following is a reconciliation between net income as reported in the
financial statements and Federal taxable income allocated to the partners in the
Partnership's information returns for the years ended December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net income as reported................................. $174,244 $300,722
Add (deduct):
Deferred revenue..................................... (9,968) 34,081
Depreciation differences............................. (4,330) (9,118)
-------- --------
Federal taxable income................................. $159,946 $325,685
======== ========
Federal taxable income per limited partnership unit.... $ 2,111 $ 4,299
======== ========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net assets as reported.............................. $1,722,504 $1,948,260
Differences in basis of assets and liabilities:
Deferred revenue.................................. 42,994 52,962
Accumulated depreciation.......................... (25,556) (21,226)
Syndication costs................................. 213,094 213,094
---------- ----------
Net assets -- tax basis............................. $1,953,036 $2,193,090
========== ==========
</TABLE>
F-32
<PAGE> 1154
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1155
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1156
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1157
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
CHAPEL HILL, LIMITED
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS
OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a small number of apartment properties to
holding an interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1158
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-16
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Chapel Hill,
Limited.................................... S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-36
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-41
General...................................... S-41
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-57
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-58
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
</TABLE>
i
<PAGE> 1159
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
Distributions and Transfers of Units......... S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-78
LEGAL MATTERS.................................. S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1160
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Chapel Hill, Limited. For each unit that you tender, you may choose to
receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1161
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 1162
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of year tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $0 per unit for the six months ended
June 30, 1998. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis).
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a small number of apartment
properties to holding an interest in an operating business that owns and
manages a large portfolio of properties, with risks that do not exist for
your partnership. You should review the risk factors in this Prospectus
Supplement and in the accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
S-3
<PAGE> 1163
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
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Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
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Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us. Although your
partnership did not make any distributions in 1998, it might make distributions
in the future.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a small
number of apartment properties to an interest in a partnership that invests in
and manages a large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
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<PAGE> 1168
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no
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<PAGE> 1169
assurance as to our ability to complete future acquisitions. Although we seek
acquisitions and development activities that are accretive on a per share basis,
acquisitions and development activities may fail to perform in accordance with
our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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<PAGE> 1170
rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently own a 3.85% limited partnership interest in your
partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the
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benefits that your general partner expects to result from the offer. For
example, a partner of your partnership would have no opportunity for
liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units. Your partnership has not paid any distributions on your units
since the inception of your partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Your partnership has not paid
any distributions on your units since the inception of your partnership.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
S-13
<PAGE> 1173
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
S-14
<PAGE> 1174
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF
S-15
<PAGE> 1175
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION
OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO
OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE
ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING
OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
- ---------------
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness
S-16
<PAGE> 1176
to you of our offer consideration. Stanger is not affiliated with us or
your general partner. Stanger is one of the leaders in the field of analyzing
and evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. You should
make your decision whether to tender based upon a number of factors, including
your financial needs, other financial opportunities available to you and your
tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Consideration to Other Values. In evaluating the offer,
your general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
S-17
<PAGE> 1177
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives $48,000
annually of your partnership and may also receive reimbursement for expenses
generated in its capacity as general partner. The property manager received
management fees of $116,896 in 1996, $119,469 in 1997 and $61,949 for the first
six months of 1998. We have no current intention of changing the fee structure
for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Chapel Hill, Limited is a Tennessee
limited partnership which was formed on April 20, 1984 for the purpose of owning
and operating a small number of apartment properties located in Indianapolis,
Indiana, known as "Chapel Hill Apartments" and "Chapelwood Apartments." In 1984,
it completed a private placement of units that raised net proceeds of
approximately $4,888,000. Chapel Hill Apartments consists of 148 apartment units
and Chapelwood Apartments consists of 140 apartment units. Your partnership has
no employees.
Property Management. Since December 1991, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase
S-18
<PAGE> 1178
of equipment and supplies, and the selection and engagement of all vendors,
suppliers and independent contractors. The property manager is affiliated with
us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on July 1, 2015, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding on Chapel Hill Apartments of $3,511,739,
payable to Marine Midland Bank, Bank of America and FNMA, which bears interest
at a rate of 7.60%. Such mortgage debt is due November 2002. Your partnership
also has a second mortgage note outstanding on the property of $124,785, on the
same terms as the current Chapel Hill Apartments mortgage note. There is also a
mortgage note on Chapelwood Apartments, the balance of which is $3,638,777, as
of June 30, 1998. The note is payable to Marine Midland Bank, Bank of America
and FNMA, bears interest at 7.60% and is due November 2002. Chapelwood
Apartments also secures a second mortgage note with a balance of $129,300 which
has the same terms as the first mortgage. Your partnership's agreement of
limited partnership also allows your general partner to lend funds to your
partnership. Currently, the general partner of your partnership has no loan
outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 1179
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1180
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1181
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1182
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1183
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 1184
SUMMARY FINANCIAL INFORMATION OF CHAPEL HILL, LIMITED
The summary financial information of Chapel Hill, Limited for the six
months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Chapel Hill, Limited for the years ended December 31, 1997 and
1996, 1995, 1994 and 1993 is based on financial statements. This information
should be read in conjunction with such financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Your Partnership" included herein. See "Index to
Financial Statements."
CHAPEL HILL, LIMITED
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............. $ 1,231,112 $ 1,181,549 $ 2,414,060 $ 2,295,793 $ 2,326,215 $ 2,237,699 $ 2,139,393
Net Income/(Loss).......... (50,349) 112,352 (65,397) (141,794) (308,629) (172,070) (267,186)
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated
Depreciation............. 1,759,935 2,067,724 1,932,461 2,248,160 2,581,477 2,808,349 3,197,960
Total Assets............. 3,008,111 3,304,434 3,119,724 3,348,394 3,662,018 4,086,115 4,416,791
Mortgage Notes Payable,
including Accrued
Interest................. 7,094,216 7,250,104 7,208,979 7,356,494 7,502,438 7,636,184 7,758,752
Partners'
Capital/(Deficit)........ (4,254,360) (4,023,091) (4,204,011) (4,135,443) (3,991,181) (3,680,506) (3,508,436)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per Common OP Unit and
historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 $0 $0
</TABLE>
S-25
<PAGE> 1185
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly,
although there can be no assurance, you might receive more consideration if you
do not tender your units and, instead, continue to hold your units and
ultimately receive proceeds from a liquidation of your partnership. However, you
may prefer to receive our offer consideration now rather than wait for uncertain
future net liquidation proceeds. Furthermore, your general partner has no
present intention to liquidate your partnership, and your partnership's
agreement of limited partnership does not require a sale of your partnership's
property by any particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 1186
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights, title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a small number of apartment
properties. In contrast, the AIMCO Operating Partnership is in the business of
acquiring, marketing, managing and operating a large portfolio of apartment
properties. While diversification of assets may reduce certain risks of
investment attributable to a single property or entity, there can be no
assurance as to the value or performance of our securities or our portfolio of
properties as compared to the value of your units or your partnership. Proceeds
of future asset sales or refinancings by the AIMCO Operating Partnership
generally will be reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 1187
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Based on anticipated annualized distributions of
$ with respect to the Preferred OP Units, current annualized distributions
with respect to the Common OP Units of $2.25, and the 1998 distributions of $0
with respect to your units, distributions with respect to the Preferred OP Units
and Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that
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AIMCO's access to the public markets may prove challenging in light of the
volatility in both the equity and capital markets for REITs. Moody's assigned a
"ba3" rating to the Class I Preferred Stock proposed to be issued by AIMCO, and
confirmed its previous ratings related to AIMCO's preferred stock and debt in
its shelf registration statement. Moody's indicated that its rating action
continues to reflect AIMCO's increasing leveraged profile, including high levels
of secured debt and preferred stock, limited financial flexibility and
integration risks resulting from the merger with Insignia. Moody's also noted
AIMCO's high level of encumbered properties and material investments in loans to
highly leveraged partnerships in which AIMCO owns a general partnership
interest. At the same time, Moody's confirmed its existing rating on AIMCO's
existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently own a 3.85% limited partnership interest in your partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
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Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral
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% Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units. Your Partnership has not paid any
distributions on your units since the inception of your partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future. Your Partnership
has not paid any distributions on your units since the inception of your
partnership.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY
DELAY IN MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
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All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
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If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
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VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998 (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P
500 Index, the Morgan Stanley REIT Index, or the price of the 10-year
Treasury Bond or the price of the 30-year Treasury Bond, in each case from
, 1998, (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the sole judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental agency,
or by any other person, before any governmental authority, court or
regulatory or administrative
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agency, authority or tribunal, which (i) challenges or seeks to challenge
the acquisition by the AIMCO Operating Partnership of the units, restrains,
prohibits or delays the making or consummation of the offer, prohibits the
performance of any of the contracts or other arrangements entered into by
the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating
Partnership) seeks to obtain any material amount of damages as a result of
the transactions contemplated by the offer, (ii) seeks to make the purchase
of, or payment for, some or all of the units pursuant to the offer illegal
or results in a delay in the ability of the AIMCO Operating Partnership to
accept for payment or pay for some or all of the units, (iii) seeks to
prohibit or limit the ownership or operation by AIMCO or any of its
affiliates of the entity serving as the general partner of your partnership
or to remove such entity as the general partner of your partnership, or
seeks to impose any material limitation on the ability of the AIMCO
Operating Partnership or any of its affiliates to conduct your
partnership's business or own such assets, (iv) seeks to impose material
limitations on the ability of the AIMCO Operating Partnership or any of its
affiliates to acquire or hold or to exercise full rights of ownership of
the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to
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acquire beneficial ownership of more than four percent of the units, or
shall have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than four percent of the
units, or (ii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect to a
merger, consolidation, purchase or lease of assets, debt refinancing or
other business combination with or involving your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking
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of any such action, there can be no assurance that any such additional
approval or action, if needed, would be obtained without substantial conditions
or that adverse consequences might not result to your partnership's business, or
that certain parts of your partnership's business might not have to be disposed
of or other substantial conditions complied with in order to obtain such
approval or action, any of which could cause the AIMCO Operating Partnership to
elect to terminate the offer without purchasing units hereunder. The AIMCO
Operating Partnership's obligation to purchase and pay for units is subject to
certain conditions, including conditions related to the legal matters discussed
in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
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RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any
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Parity Units shall be declared ratably in proportion to the respective
amounts of distributions accumulated, accrued and unpaid on the Preferred OP
Units and accumulated, accrued and unpaid on such Parity Units. Except as set
forth in the preceding sentence, unless distributions on the Preferred OP Units
equal to the full amount of accumulated, accrued and unpaid distributions have
been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof has been or contemporaneously is set apart
for such payment, for all past distribution periods, no distributions shall be
declared or paid or set apart for payment by the AIMCO Operating Partnership
with respect to any Parity Units. Unless full cumulative distributions
(including all accumulated, accrued and unpaid distributions) on the Preferred
OP Units have been declared and paid, or declared and set apart for payment, for
all past distribution periods, no distributions (other than distributions or
distributions paid in Junior Units or options, warrants or rights to subscribe
for or purchase Junior Units) may be declared or paid or set apart for payment
by the AIMCO Operating Partnership and no other distribution of cash or other
property may be declared or made, directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall any Junior Units be
redeemed, purchased or otherwise acquired (except for a redemption, purchase or
other acquisition of Common OP Units made for purposes of an employee incentive
or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for
any consideration (or any monies be paid to or made available for a sinking fund
for the redemption of any such Junior Units), directly or indirectly, by the
AIMCO Operating Partnership (except by conversion into or exchange for Junior
Units, or options, warrants or rights to subscribe for or purchase Junior
Units), nor shall any other cash or other property be paid or distributed to or
for the benefit of holders of Junior Units. Notwithstanding the foregoing
provisions of this paragraph, the AIMCO Operating Partnership shall not be
prohibited from (i) declaring or paying or setting apart for payment any
distribution on any Parity Units or (ii) redeeming, purchasing or otherwise
acquiring any Parity Units, in each case, if such declaration, payment,
redemption, purchase or other acquisition is necessary to maintain AIMCO's
qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations
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shall have been made in full to the holders of Preferred OP Units and any
Parity Units to enable them to receive their Liquidation Preference, any Junior
Units shall be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Preferred OP Units and any Parity Units
shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 1205
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 1206
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 1207
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 1208
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 1209
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 1210
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 1211
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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<PAGE> 1213
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other Partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 1214
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Based on anticipated annualized distributions of $ with respect
to the Preferred OP Units, current annualized distributions with respect to
the Common OP Units of $2.25, and the 1998 distributions of $0 with respect
to your units, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to
your units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment
S-55
<PAGE> 1215
properties although there are other ways to value real estate. A
liquidation in the future might generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
S-56
<PAGE> 1216
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets would be disposed of in an
orderly manner and not sold in forced or distressed sales where sellers might be
expected to dispose of their interests at substantial discounts to their actual
fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
S-57
<PAGE> 1217
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not
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<PAGE> 1218
limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between the general partner, special limited partner and limited partners of
your partnership, the terms and conditions of any debt encumbering the
partnership's property, and the transaction costs and fees associated with a
sale of the property. Stanger also relied upon the assurance of your
partnership, AIMCO, and the management of the partnership's property that any
financial statements, budgets, pro forma statements, projections, capital
expenditure estimates, debt, value estimates and other information contained in
this Prospectus Supplement or provided or communicated to Stanger were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the
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<PAGE> 1219
value of the partnership's property or other balance sheet assets and
liabilities or other information reviewed between the date of such information
provided and the date of the Fairness Opinion; that your partnership, AIMCO, and
the management of the partnership's property are not aware of any information or
facts that would cause the information supplied to Stanger to be incomplete or
misleading; that the highest and best use of the partnership's property is as
improved; and that all calculations were made in accordance with the terms of
your partnership's agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Tennessee law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Chapel Hill Apartments and Chapelwood Partnership owns interests (either directly or through
Apartments. subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is July 1, 2015. Agreement") or as provided by law. See "Description of
OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire and operate The purpose of the AIMCO Operating Partnership is to
your partnership's property. Subject to restrictions conduct any business that may be lawfully conducted by
contained in your partnership's agreement of limited a limited partnership organized pursuant to the
partnership, your partnership may perform all act Delaware Revised Uniform Limited Partnership Act (as
necessary or appropriate in connection therewith and amended from time to time, or any successor to such
reasonably related thereto, including acquiring statute) (the "Delaware Limited Partnership Act"),
additional real or personal property, borrowing money provided that such business is to be conducted in a
and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
S-61
<PAGE> 1221
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 65 units for cash and time to the limited partners and to other persons, and
notes to selected persons who fulfill the requirements to admit such other persons as additional limited
set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital
partnership. The capital contribution need not be equal contributions as may be established by the general
for all limited partners and no action or consent is partner in its sole discretion. The net capital
required in connection with the admission of any contribution need not be equal for all OP Unitholders.
additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute
partnership, your partnership may acquire property or funds or other assets to its subsidiaries or other
services from, and have other transactions with persons persons in which it has an equity investment, and such
who are partners or who are affiliates of partners. Any persons may borrow funds from the AIMCO Operating
and all compensation paid to such persons in connection Partnership, on terms and conditions established in the
with services performed for your partnership must be sole and absolute discretion of the general partner. To
commensurate with that which would be paid to an the extent consistent with the business purpose of the
independent person for similar services and all AIMCO Operating Partnership and the permitted
agreements must be in writing. The partnership may not activities of the general partner, the AIMCO Operating
make loans to any partners but the general partners may Partnership may transfer assets to joint ventures,
make loans to your partnership; provided that the limited liability companies, partnerships,
interest and fees received by the general partners in corporations, business trusts or other business
connection with such loans are not in excess of the entities in which it is or thereby becomes a
amounts which would be charged by an unrelated bank and participant upon such terms and subject to such
the general partners do not receive a finder's or conditions consistent with the AIMCO Operating Part-
placement fee or commission. nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money and issue evidences of indebtedness in restrictions on borrowings, and the general partner has
furtherance of your partnership business, whether full power and authority to borrow money on behalf of
secured or unsecured. the AIMCO Operating Partnership. The AIMCO Operating
Partnership has credit agreements that restrict, among
other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
S-62
<PAGE> 1222
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners to receive, for any with a statement of the purpose of such demand and at
proper purpose, the name and address of each limited such OP Unitholder's own expense, to obtain a current
partner and the number of units owned by each limited list of the name and last known business, residence or
partners. Your partnership furnishes such information mailing address of the general partner and each other
to any limited partner requesting the same in writing, OP Unitholder.
upon payment of all costs and expenses of your
partnership in connection with the preparation and
forwarding of such information.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership manages and All management powers over the business and affairs of
controls your partnership and all aspects of its the AIMCO Operating Partnership are vested in AIMCO-GP,
business. The general partner has full, exclusive and Inc., which is the general partner. No OP Unitholder
complete authority and discretion in the management and has any right to participate in or exercise control or
control of the business and the activities and management power over the business and affairs of the
operations of your partnership. In the exercise of its AIMCO Operating Partnership. The OP Unitholders have
authority, it makes all decisions affecting the conduct the right to vote on certain matters described under
of the business of your partnership. Limited partners "Comparison of Ownership of Your Units and AIMCO OP
may not take part in the management of the business, Units -- Voting Rights" below. The general partner may
affairs and operations of your partnership, transact not be removed by the OP Unitholders with or without
any business for your partnership, have any power, cause.
right or authority to enter into any agreement, execute
or sign documents for, make representation on behalf of In addition to the powers granted a general partner of
nor to otherwise act so as to bind your partnership in a limited partnership under applicable law or that are
any manner. granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general
and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating
accountable, in damages or otherwise to your Partnership for losses sustained, liabilities incurred
partnership or any limited partner for any acts or benefits not derived as a result of errors in
performed by any of them which are reasonably believed judgment or mistakes of fact or law of any act or
by them to be within the scope of the authority omission if the general partner acted in good faith.
conferred on them by your partnership's agreement of The AIMCO Operating Partnership Agreement provides for
limited partnership, excepting only acts of malfea- indemnification of AIMCO, or any director or officer of
sance, gross negligence or actual misrepresentation. In AIMCO (in its capacity as the previous general partner
addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general
entitled to indemnification by your partnership for any partner, any officer or director of general partner or
and all acts performed by them in the good faith belief the AIMCO Operating Partnership and such other persons
that the act or omission was in the best interests of as the general partner may designate from and against
your partnership and which are reasonably within the all losses, claims, damages, liabilities, joint or
scope of the authority conferred upon them by your several, expenses (including legal fees), fines,
partnership's agreement of limited partnership or by settlements and other amounts incurred in connection
your partnership, excepting only acts of malfeasance, with any actions relating to the operations of the
gross negligence or actual misrepresentation; provided, AIMCO Operating Partnership, as set forth in the AIMCO
however, that such indemnity will be paid out of, and Operating Partnership Agreement. The Delaware Limited
only to the extent of, partnership assets. Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its
</TABLE>
S-63
<PAGE> 1223
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
partnership agreement, a limited partnership may, and
shall have the power to, indemnify and hold harmless
any partner or other person from and against any and
all claims and demands whatsoever. It is the position
of the Securities and Exchange Commission that
indemnification of directors and officers for
liabilities arising under the Securities Act is against
public policy and is unenforceable pursuant to Section
14 of the Securities Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner for cause and elect a successor general partner affairs of the AIMCO Operating Partnership. The general
upon a vote of the limited partners owning a majority partner may not be removed as general partner of the
of the outstanding units. A general partner may not AIMCO Operating Partnership by the OP Unitholders with
transfer, assign, sell, withdraw or otherwise dispose or without cause. Under the AIMCO Operating Partnership
of its interest unless it obtains the prior written Agreement, the general partner may, in its sole
consent of those persons owning more than 50% of the discretion, prevent a transferee of an OP Unit from
units and satisfies other conditions set forth in your becoming a substituted limited partner pursuant to the
partnership's agreement of limited partnership. Such AIMCO Operating Partnership Agreement. The general
consent is also necessary for the approval of a new partner may exercise this right of approval to deter,
general partner. A limited partner may not transfer his delay or hamper attempts by persons to acquire a
interests without the written consent of the general controlling interest in the AIMCO Operating Partner-
partner which may be withheld at the sole discretion of ship. Additionally, the AIMCO Operating Partnership
the general partner. Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to change the name in the AIMCO Operating Partnership Agreement, whereby
and location of the principal place of business of your the general partner may, without the consent of the OP
partnership, change the name or the residence of a Unitholders, amend the AIMCO Operating Partnership
partner, substitute a limited partner, correct an error Agreement, amendments to the AIMCO Operating
in your partnership's agreement of limited part- Partnership Agreement require the consent of the
nership and as required by law. Amendments of specified holders of a majority of the outstanding Common OP
provisions of your partnership's agreement of limited Units, excluding AIMCO and certain other limited
partnership may be made only with the prior written exclusions (a "Majority in Interest"). Amendments to
consent of all partners. Other amendments must be the AIMCO Operating Partnership Agreement may be
approved by the limited partners owning more than 50% proposed by the general partner or by holders of a
of the units. Majority in Interest. Following such proposal, the
general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives $48,000 annually. Moreover, the general capacity as general partner of the AIMCO Operating
partner or certain affiliates may be entitled to Partnership. In addition, the AIMCO Operating Part-
compensation for additional services rendered. nership is responsible for all expenses incurred
relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 1224
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, limited partners are not subject to negligence, no OP Unitholder has personal liability for
assessment nor personally liable for any of the debts the AIMCO Operating Partnership's debts and
or obligations of your partnership or any of losses of obligations, and liability of the OP Unitholders for
your partnership beyond its obligations to contribute the AIMCO Operating Partnership's debts and obligations
to the capital of your partnership as specified in your is generally limited to the amount of their invest-
partnership's agreement of limited partnership and as ment in the AIMCO Operating Partnership. However, the
otherwise provided by law. limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner has fiduciary partnership agreement, Delaware law generally requires
responsibilities to your partnership in respect of the a general partner of a Delaware limited partnership to
funds and assets of your partnership and will take all adhere to fiduciary duty standards under which it owes
actions which may be necessary or appropriate for the its limited partners the highest duties of good faith,
proper maintenance and operation of your partnership's fairness and loyalty and which generally prohibit such
property in accordance with the provisions of your general partner from taking any action or engaging in
partnership's agreement of limited partnership and in any transaction as to which it has a conflict of
accordance with applicable laws and regulations. The interest. The AIMCO Operating Partnership Agreement
general partner will manage and control the affairs of expressly authorizes the general partner to enter into,
your partnership to the best of its abilities and use on behalf of the AIMCO Operating Partnership, a right
its best efforts to carry out the business of your of first opportunity arrangement and other conflict
partnership as set forth in your partnership's avoidance agreements with various affiliates of the
agreement of limited partnership. However, the general AIMCO Operating Partnership and the general partner, on
partner may engage in or hold interests in other such terms as the general partner, in its sole and
business ventures of every kind and description for its absolute discretion, believes are advisable. The AIMCO
own account including, without limitation, ventures Operating Partnership Agreement expressly limits the
such as those undertaken by your partnership and the liability of the general partner by providing that the
partners shall have no rights in and to such general partner, and its officers and directors will
independent business venture or the income and profits not be liable or accountable in damages to the AIMCO
derived therefrom. Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-65
<PAGE> 1225
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding the holders of the Preferred OP respect to certain limited matters
units, the limited partners may Units will have the same voting such as certain amendments and
amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating
of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain
certain limitations; dissolve and Units" in the accompanying transactions such as the
terminate your partnership; remove Prospectus. So long as any institution of bankruptcy
a general partner for cause; and Preferred OP Units are outstand- proceedings, an assignment for the
approve or disapprove the sale of ing, in addition to any other vote benefit of creditors and certain
all or substantially all of the or consent of partners required by transfers by the general partner of
assets of your partnership. law or by the AIMCO Operating its interest in the AIMCO Operating
Partnership Agree- Part-
</TABLE>
S-66
<PAGE> 1226
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
A general partner may cause the ment, the affirmative vote or nership or the admission of a
dissolution of the your partnership consent of holders of at least 50% successor general partner.
by retiring when there are no of the outstanding Preferred OP
remaining general partners unless, Units will be necessary for Under the AIMCO Operating Partner-
the limited partners owning more effecting any amendment of any of ship Agreement, the general partner
the 50% of the then outstanding the provisions of the Partnership has the power to effect the
units elect a new general partner Unit Designation of the Preferred acquisition, sale, transfer,
who decides to continue your OP Units that materially and exchange or other disposition of
partnership with the approval of adversely affects the rights or any assets of the AIMCO Operating
the limited partners owning more preferences of the holders of the Partnership (including, but not
than 50% of the then outstanding Preferred OP Units. The creation or limited to, the exercise or grant
units. issuance of any class or series of of any conversion, option,
partnership units, including, privilege or subscription right or
without limitation, any partner- any other right available in
ship units that may have rights connection with any assets at any
senior or superior to the Preferred time held by the AIMCO Operating
OP Units, shall not be deemed to Partnership) or the merger,
materially adversely affect the consolidation, reorganization or
rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Your partnership may, but is not $ per Preferred OP Unit; tribute quarterly all, or such
obligated to, make current provided, however, that at any time portion as the general partner may
distributions out of its cash funds and from time to time on or after in its sole and absolute discretion
as the general partner may, in its the fifth anniversary of the issue determine, of Available Cash (as
discretion, determine. The date of the Preferred OP Units, the defined in the AIMCO Operating
distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by
partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership
and depend upon the operating on the Preferred OP Units to the during such quarter to the general
results and net sales or lower of (i) % plus the annual partner, the special limited
refinancing proceeds available from interest rate then applicable to partner and the holders of Common
the disposition of your U.S. Treasury notes with a maturity OP Units on the record date
partnership's assets. Your of five years, and (ii) the annual established by the general partner
partnership has not made dividend rate on the most recently with respect to such quarter, in
distributions in the past five issued AIMCO non-convertible accordance with their respective
years and is not projected to make preferred stock which ranks on a interests in the AIMCO Operating
distributions in 1998. parity with its Class H Cumu- Partnership on such record date.
lative Preferred Stock. Such Holders of any other Preferred OP
distributions Units issued in the future may
</TABLE>
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<PAGE> 1227
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
will be cumulative from the date of have priority over the general
original issue. Holders of partner, the special limited
Preferred OP Units will not be partner and holders of Common OP
entitled to receive any distribu- Units with respect to distri-
tions in excess of cumulative butions of Available Cash,
distributions on the Preferred OP distributions upon liquidation or
Units. No interest, or sum of money other distributions. See "Per Share
in lieu of interest, shall be and Per Unit Data" in the
payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part-
substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the
such person if: (1) the interest on any securities exchange. The transferability of the OP Units.
being acquired by the assignee Preferred OP Units are subject to Until the expiration of one year
consists of an integral multiple of restrictions on transfer as set from the date on which an OP
half units, (2) a written forth in the AIMCO Operating Unitholder acquired OP Units,
assignment has been duly executed Partnership Agreement. subject to certain exceptions, such
and acknowledged by the assignor OP Unitholder may not transfer all
and assignee, (3) the written Pursuant to the AIMCO Operating or any portion of its OP Units to
approval of the general partner Partnership Agreement, until the any transferee without the consent
which may be withheld in the sole expiration of one year from the of the general partner, which
and absolute discretion of the date on which a holder of Preferred consent may be withheld in its sole
general partner has been granted, OP Units acquired Preferred OP and absolute discretion. After the
(4) the assignor or the assignee Units, subject to certain expiration of one year, such OP
pays a transfer fee, (5) the exceptions, such holder of Unitholder has the right to
transfer will not result in a Preferred OP Units may not transfer transfer all or any portion of its
termination of your partnership for all or any portion of its Pre- OP Units to any person, subject to
tax purposes and (6) the assignor ferred OP Units to any transferee the satisfaction of certain
and assignee have complied with without the consent of the general conditions specified in the AIMCO
such other conditions as set forth partner, which consent may be Operating Partnership Agreement,
in your partnership's agreement of withheld in its sole and absolute including the general partner's
limited partnership. discretion. After the expiration of right of first refusal. See
There are no redemption rights one year, such holders of Preferred "Description of OP Units --
associated with your units. OP Units has the right to transfer Transfers and Withdrawals" in the
all or any portion of its Preferred accompanying Prospectus.
OP Units to any person, subject to
the satisfaction of certain After the first anniversary of
conditions specified in the becoming a
</TABLE>
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<PAGE> 1228
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
AIMCO Operating Partnership Agree- holder of Common OP Units, an OP
ment, including the general Unitholder has the right, subject
partner's right of first refusal. to the terms and conditions of the
AIMCO Operating Partnership
After a one-year holding period, a Agreement, to require the AIMCO
holder may redeem Preferred OP Operating Partnership to redeem all
Units and receive in exchange or a portion of the Common OP Units
therefor, at the AIMCO Operating held by such party in exchange for
Partnership's option, (i) subject a cash amount based on the value of
to the terms of any Senior Units, shares of Class A Common Stock. See
cash in an amount equal to the "Description of OP
Liquidation Preference of the Units -- Redemption Rights" in the
Preferred OP Units tendered for accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-69
<PAGE> 1229
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer consideration for you, even as a subsidiary of AIMCO. It also has a
duty to remove the property manager for your partnership's property, under
certain circumstances, even though the property manager is also an affiliate of
AIMCO. The conflicts of interest include the fact that a decision to remove, for
any reason, the general partner of your partnership from its current position as
a general partner of your partnership would result in a decrease or elimination
of the substantial management fees paid to an affiliate of the general partner
of your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives $48,000
annually from your partnership and may receive reimbursement for expenses
generated in its capacity as general partner. The Property Manager received
management fees of $116,896 in 1996, $119,469 in 1997 and $61,949 for the first
six months of 1998. The AIMCO Operating Partnership has no current intention of
changing the fee structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-70
<PAGE> 1230
YOUR PARTNERSHIP
GENERAL
Your partnership is a Tennessee limited partnership which raised net
proceeds of approximately $4,888,000 in 1984 through a private offering. The
promoter for the private offering of your partnership was Freeman Properties,
Inc. Insignia acquired your partnership in December 1991. AIMCO acquired
Insignia in October, 1998. There are currently a total of 74 limited partners of
your partnership and a total of 65 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the small number of apartment
properties described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on April 20, 1984 for the purpose of owning and
operating a small number of apartment properties located in Indianapolis,
Indiana, known as "Chapel Hill Apartments" and "Chapelwood Apartments". There
are 148 apartment units in Chapel Hill Apartments consisting of 28 one-bedroom
apartments, 80 two-bedroom apartments and 40 three-bedroom apartments. The total
rentable square footage is 183,600 square feet and the average annual rent per
apartment unit is $7,174. Chapel Hill Apartments had an average occupancy rate
of 95.27% in 1996 and 1997. Chapelwood Apartments has 140 apartment units. There
are 24 one-bedroom apartments, 32 two-bedroom apartments and 68 three-bedroom
apartments. The total rentable square footage is 220,300 square feet. In 1996,
Chapelwood Apartments had an average occupancy rate of approximately of 90.71%
and 90.71% in 1997. The average annual rent per apartment unit is $8,566.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1991, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $116,896, $119,469 and $61,949, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on July 1, 2015 unless
earlier dissolved. Your partnership has no present intention to liquidate, sell,
finance or refinance your partnership's property within any specified time
period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
S-71
<PAGE> 1231
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $3,511,739, payable to Marine Midland Bank, Bank of America and
FHMA, which bears interest at a rate of 7.60%. The mortgage debt is due November
2002. Your partnership also has a second mortgage note outstanding on the
property of $124,785, on the same terms as the current Chapel Hill Apartments
mortgage note. There is also a mortgage note on Chapelwood Apartments, the
balance of which is $3,638,777, as of June 30, 1998. The note is payable to
Marine Midland Bank, Bank of America and FNMA, bears interest at 7.60% and is
due November 2002. Chapelwood Apartments also secures a second mortgage note
with a balance of $129,300 which has the same terms as the first mortgage. Your
partnership's agreement of limited partnership also allows the general partner
of your partnership to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
S-72
<PAGE> 1232
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
Below is selected financial information for Chapel Hill, Limited taken from
the financial statements described above. See "Index to Financial Statements."
<TABLE>
<CAPTION>
CHAPEL HILL, LIMITED
-----------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents... $ 347,599 $ 324,710 $ 292,551 $ 224,194 $ 209,734 $ 348,683 $ 239,621
Land & Building............. 9,969,706 9,769,927 9,888,448 9,696,579 9,533,433 9,277,337 9,292,270
Accumulated Depreciation.... (8,209,771) (7,702,203) (7,955,987) (7,448,419) (6,951,956) (6,468,988) (6,094,310)
Other Assets................ 900,577 912,000 894,712 876,040 870,807 929,083 979,210
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets....... $ 3,008,111 $ 3,304,434 $ 3,119,724 $ 3,348,394 $ 3,662,018 $ 4,086,115 $ 4,416,791
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS'
DEFICIT
Mortgage & Accrued
Interest.................. $47,094,216 $ 7,250,104 $ 7,208,979 $ 7,356,494 $ 7,502,438 $ 7,636,184 $ 7,758,752
Other Liabilities........... 168,256 77,420 114,756 127,343 150,761 130,437 166,475
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
Liabilities...... 7,262,472 7,327,524 7,323,735 7,483,837 7,653,199 7,766,621 7,925,227
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital
(Deficit)................. $(4,254,360) $(4,023,091) $(4,204,011) $(4,135,443) $(3,991,181) $(3,680,506) $(3,508,436)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CHAPEL HILL, LIMITED
------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue..................... $1,156,975 $1,104,642 $2,259,379 $2,147,082 $2,170,553 $2,086,094 $2,074,155
Other Income....................... 74,137 76,907 154,681 148,711 155,662 151,605 65,238
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue............. 1,231,112 1,181,549 2,414,060 2,295,793 2,326,215 2,237,699 2,139,393
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses................. 576,703 423,632 1,052,313 960,238 1,139,355 902,662 893,595
General & Administrative........... 53,903 40,293 86,403 91,477 89,073 116,713 71,129
Depreciation....................... 253,784 253,784 507,568 496,463 482,968 472,534 528,745
Interest Expense................... 283,932 292,305 674,526 675,042 688,381 674,266 685,068
Property Taxes..................... 113,139 59,183 158,647 214,367 235,067 243,594 228,042
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses............ 1,281,461 1,069,197 2,479,457 2,437,587 2,634,844 2,409,769 2,406,579
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ (50,349) $ 112,352 $ (65,397) $ (141,794) $ (308,629) $ (172,070) $ (267,186)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
S-73
<PAGE> 1233
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized a net loss of $50,349 for the six months ended
June 30, 1998, compared to net income of $112,352 for the six months ended June
30, 1997. The decrease in net income of $162,701, or 144.81% was primarily the
result of an increase in operating expenses during 1998. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,231,112 for the six months ended June 30, 1998, compared to $1,181,549 for
the six months ended June 30, 1997, an increase of $49,563, or 4.19%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$576,703 for the six months ended June 30, 1998, compared to $423,632 for the
six months ended June 30, 1997, an increase of $153,071 or 36.13%. The increase
is primarily due to an increase in accrued expenses for the interim period and
an increase in repairs and maintenance at both properties. Management expenses
totaled $61,949 for the six months ended June 30, 1998, compared to $59,112 for
the six months ended June 30, 1997, an increase of $2,837, or 4.80%.
General and Administrative Expenses
General and administrative expenses totaled $53,903 for the six months
ended June 30, 1998 compared to $40,293 for the six months ended June 30, 1997,
an increase of $13,610 or 33.78%. The increase is primarily due to the timing of
audit fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $283,932 for the six months ended June 30, 1998, compared to
$292,305 for the six months ended June 30, 1997, $8,534 for the six months ended
June 30, 1997, for a decrease of $920.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized a net loss of $65,397 for the year ended
December 31, 1997, compared to a net loss of $141,794 for the year ended
December 31, 1996. The increase in net income of $76,397, or 53.88% was
primarily the result of an increase in rental revenues and a decrease in
property taxes offset by an increase in operating expenses. These factors are
discussed in more detail in the following paragraphs.
S-74
<PAGE> 1234
Revenues
Rental and other property revenues from the partnership's property totaled
$2,414,060 for the year ended December 31, 1997, compared to $2,295,793 for the
year ended December 31, 1996, an increase of $118,267, or 5.15%. The increase is
primarily due to increases in the average occupancy levels and the rental rates
at both properties.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$1,052,313 for the year ended December 31, 1997, compared to $960,238 for the
year ended December 31, 1996, an increase of $92,075 or 9.59%. The increase is
due to increases in advertising and personnel expenses. Management expenses
totaled $119,469 for the year ended December 31, 1997, compared to $116,896 for
the year ended December 31, 1996, an increase of $2,573, or 2.20%.
General and Administrative Expenses
General and administrative expenses totaled $86,403 for the year ended
December 31, 1997 compared to $91,477 for the year ended December 31, 1996, a
decrease of $5,074 or 5.55%. The decrease is primarily due to the timing of
audit fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $674,526 for the year ended December 31, 1997, compared to
$675,042 for the year ended December 31, 1996, a decrease of $516, or 0.08%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $141,794 for the year ended
December 31, 1996, compared to a net loss of $308,629 for the year ended
December 31, 1995. The increase in net income of $166,835, or 54.06% was
primarily the result of a decrease in operating expenses. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,295,793 for the year ended December 31, 1996, compared to $2,326,215 for the
year ended December 31, 1995, a decrease of $30,422, or 1.31%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$960,238 for the year ended December 31, 1996,compared to $1,139,355 for the
year ended December 31, 1995, a decrease of $179,117 or 15.72%. The decrease is
primarily due to a decrease in maintenance expense due to an exterior painting
project at one of the properties in 1995. Management expenses totaled $116,896
for the year ended December 31, 1996, compared to $115,300 for the year ended
December 31, 1995, an increase of $1,596, or 1.38%.
General and Administrative Expenses
General and administrative expenses totaled $91,477 for the year ended
December 31, 1996 compared to $89,073 for the year ended December 31, 1995, an
increase of $2,404 or 2.70%.
S-75
<PAGE> 1235
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $675,042 for the year ended December 31, 1996, compared to
$688,381 for the year ended December 31, 1995, a decrease of $13,339, or 1.94%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $347,599 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership and
its affiliates are not liable, responsible or accountable, in damages or
otherwise to your partnership or any limited partner for any acts performed by
any of them which are reasonably believed by them to be within the scope of the
authority conferred on them by your partnership's agreement of limited
partnership, excepting only acts of malfeasance, gross negligence or actual
misrepresentation. As a result, unitholders might have a more limited right of
action in certain circumstances than they would have in the absence of such a
provision in your partnership's agreement of limited partnership. The general
partner of your partnership is owned by AIMCO. See "Conflicts of Interest."
The general partner and its affiliates are entitled to indemnification by
your partnership for any and all acts performed by them in the good faith belief
that the act or omission was in the best interests of your partnership and which
are reasonably within the scope of the authority conferred upon them by your
partnership's agreement of limited partnership or by your partnership, excepting
only acts of malfeasance, gross negligence or actual misrepresentation;
provided, however, that such indemnity will be paid out of and only to the
extent of partnership assets. As part of its assumption of liabilities in the
consolidation, AIMCO will indemnify the general partner of your partnership and
their affiliates for periods prior to and following the consolidation to the
extent of the indemnity under the terms of your partnership's agreement of
limited partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has not made a distribution within the last five years.
The original cost per unit was $65,173.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions
S-76
<PAGE> 1236
(excluding transactions believed to be between related parties, family
members or the same beneficial owner) was as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1994......................... 0 0 0
1995......................... 0 0 0
1996......................... 0 0 0
1997......................... 1 1.86% 1
1998 (through June 30)....... 1 1.86% 1
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
AIMCO currently owns a 3.85% limited partnership interest in your
partnership. Except as described above, Neither AIMCO, nor, to the best of its
knowledge, any of its affiliates, (i) beneficially own or have a right to
acquire any units, (ii) have effected any transaction in the units, or (iii)
have any contract, arrangement, understanding or relationship with any other
person with respect to any securities of your partnership, including, but not
limited to, contracts, arrangements, understandings or relationships concerning
transfer or voting thereof, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994............................................ 78,527
1995............................................ 107,445
1996............................................ 81,048
1997............................................ 84,896
1998 (through June 30)..........................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995............................................ 0
1996............................................ 116,896
1997............................................ 119,469
1998 (through June 30).......................... 61,949
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-77
<PAGE> 1237
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
S-78
<PAGE> 1238
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet -- Income Tax Basis as of June 30,
1998 -- (unaudited)....................................... F-2
Condensed Statements of Operations -- Income Tax Basis for
the six months ended June 30, 1998 and 1997 (unaudited)... F-3
Condensed Statements of Cash Flows -- Income Tax Basis for
the six months ended June 30, 1998 and 1997 (unaudited)... F-4
Notes to Condensed Financial Statements -- Income Tax
Basis..................................................... F-5
Statements of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1997 and
1996 (unaudited).......................................... F-7
Statements of Revenues and Expenses and Changes in Partners'
Deficit -- Income Tax Basis for the years ended December
31, 1997 and 1996 (unaudited)............................. F-8
Statements of Cash Flows -- Income Tax Basis for the years
ended December 31, 1997 and 1996 (unaudited).............. F-9
Notes to Financial Statements -- Income Tax Basis........... F-10
Statements of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1996 and
1995 (unaudited).......................................... F-14
Statements of Revenues and Expenses and Changes in Partners'
Deficit -- Income Tax Basis for the years ended December
31, 1996 and 1995 (unaudited)............................. F-15
Statements of Cash Flows -- Income Tax Basis for the years
ended December 31, 1996 and 1995 (unaudited).............. F-16
Notes to Financial Statements -- Income Tax Basis
(unaudited)............................................... F-17
</TABLE>
F-1
<PAGE> 1239
CHAPEL HILL
CONDENSED BALANCE SHEET
INCOME TAX BASIS
(UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 347,599
Receivables and Deposits.................................... 49,713
Restricted Escrows.......................................... 313,559
Syndication Fees............................................ --
Other Assets................................................ 537,305
Investment Property:
Land...................................................... $ 375,000
Building and related personal property.................... 9,594,707
-----------
9,969,707
Less: Accumulated depreciation............................ (8,209,771) 1,759,936
----------- -----------
Total Assets...................................... $ 3,008,112
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ --
Other Accrued Liabilities................................... (168,256)
Property taxes payable...................................... --
Tenant security deposits.................................... --
Notes Payable............................................... (7,094,216)
Partners' Capital........................................... 4,254,360
-----------
Total Liabilities and Partners' Capital........... $(3,008,112)
===========
</TABLE>
F-2
<PAGE> 1240
CHAPEL HILL
CONDENSED STATEMENTS OF OPERATIONS
INCOME TAX BASIS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Rental Income............................................. $(1,156,975) $(1,104,642)
Other Income.............................................. (74,137) (76,907)
(Gain) Loss on Disposal of Property....................... -- --
Casualty Gain/Loss........................................ -- --
----------- -----------
Total Revenues.................................... (1,231,112) (1,181,549)
Expenses:
Operating Expenses........................................ 576,703 423,632
General and Administrative Expenses....................... 53,903 40,293
Depreciation Expense...................................... 253,784 253,784
Interest Expense.......................................... 283,932 292,305
Property Tax Expense...................................... 113,139 59,183
----------- -----------
Total Expenses.................................... 1,281,461 1,069,197
(Income) Loss from Operations............................... 50,349 (112,352)
Extraordinary Gain on Early Extinguishment of Debt.......... -- --
Loss on Sale of Investment Property......................... -- --
Casualty Gain............................................... -- --
----------- -----------
Net (Income) Loss................................. $ 50,349 $ (112,352)
=========== ===========
</TABLE>
F-3
<PAGE> 1241
CHAPEL HILL
CONDENSED STATEMENTS OF CASH FLOWS
INCOME TAX BASIS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ (50,349) $ 112,352
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 253,784 253,784
Loss on Casualty event................................. -- --
Extraordinary loss on refinancing...................... -- --
Changes in accounts:
Receivables and deposits and other assets............ 1,055 (29,726)
Accounts Payable and accrued expenses................ 53,500 (49,923)
--------- ----------
Net cash provided by (used in) operating
activities...................................... 257,990 286,487
Investing Activities:
Property improvements and replacements.................... (81,259) (73,348)
Property improvements -- NON-CASH......................... -- --
Proceeds from sale of investments......................... -- --
Collections on notes receivable........................... -- --
Net (increase)/decrease in restricted escrows............. (6,920) (6,234)
Net insurance proceeds received from casualty events...... -- --
Dividends received........................................ -- --
--------- ----------
Net cash provided by (used in) investing
activities...................................... (88,179) (79,582)
Financing Activities:
Payments on mortgage...................................... (114,763) (106,389)
Repayment of mortgage..................................... -- --
Prepayment penalties...................................... -- --
Proceeds from refinancing of mortgage..................... -- --
Payment of Loan Costs..................................... -- --
Partners' Distributions................................... -- --
--------- ----------
Net cash provided by (used in) financing
activities...................................... (114,763) (106,389)
--------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... 55,048 100,516
Cash and cash equivalents at beginning of year.............. 292,551 224,194
--------- ----------
Cash and cash equivalents at end of period.................. $ 347,599 $ 324,710
========= ==========
</TABLE>
F-4
<PAGE> 1242
CHAPEL HILL LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Chapel Hill Limited as
of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and all such adjustments
are of a recurring nature.
The financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997. It should be
understood that the accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
year.
F-5
<PAGE> 1243
CHAPEL HILL, LIMITED
FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT ACCOUNTANTS' COMPILATION REPORT THEREON)
F-6
<PAGE> 1244
CHAPEL HILL, LIMITED
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS'
DEFICIT -- INCOME TAX BASIS
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 292,551 $ 224,194
Receivables and deposits.................................... 109,714 91,126
Restricted escrows (Note B)................................. 306,639 294,035
Other assets................................................ 478,359 490,879
Investment properties (Note C):
Land...................................................... 375,000 375,000
Buildings and related personal property................... 9,513,448 9,321,579
----------- -----------
9,888,448 9,696,579
Less accumulated depreciation............................. (7,955,987) (7,448,419)
----------- -----------
1,932,461 2,248,160
----------- -----------
$ 3,119,724 $ 3,348,394
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 22,897 $ 33,228
Tenant security deposit liabilities....................... 44,439 47,698
Other liabilities......................................... 47,420 46,417
Mortgage notes payable (Note C)........................... 7,208,979 7,356,494
(4,204,011) (4,135,443)
----------- -----------
Partners' deficit........................................... $ 3,119,724 $ 3,348,394
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements -- Income Tax Basis
F-7
<PAGE> 1245
CHAPEL HILL, LIMITED
STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS'
DEFICIT -- INCOME TAX BASIS
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 2,259,379 $ 2,147,082
Other income.............................................. 154,681 148,711
----------- -----------
Total revenues.................................... 2,414,060 2,295,793
----------- -----------
Expenses:
Operating (Note D)........................................ 1,052,313 960,238
General and administrative (Note D)....................... 86,403 91,477
Depreciation.............................................. 507,568 496,463
Interest.................................................. 674,526 675,042
Property taxes............................................ 158,647 214,367
----------- -----------
Total expenses.................................... 2,479,457 2,437,587
----------- -----------
Net loss.................................................... (65,397) (141,794)
Distributions to partners................................... (3,171) (2,468)
Partners' deficit at beginning of year...................... (4,135,443) (3,991,181)
----------- -----------
Partners' deficit at end of year............................ $(4,204,011) $(4,135,443)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements -- Income Tax Basis
F-8
<PAGE> 1246
CHAPEL HILL, LIMITED
STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (65,397) $(141,794)
Adjustments, to reconcile net loss to net cash provided
by operating activities:
Depreciation........................................... 507,568 496,463
Amortization of discounts and loan costs............... 94,022 79,854
Change in accounts:
Receivables and deposits............................. (18,588) (5,147)
Other assets......................................... (12,130) (1,354)
Accounts payable..................................... (10,331) (35,585)
Tenant security deposit liabilities.................. (3,259) 2,997
Other liabilities.................................... 1,003 9,170
--------- ---------
Net cash provided by operating activities......... 492,888 404,604
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (191,869) (163,146)
Deposits to restricted escrows............................ (12,604) (12,379)
Receipts from restricted escrows.......................... -- 33,405
--------- ---------
Net cash used in investing activities............. (204,473) (142,120)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (216,887) (201,062)
Distributions to partners................................. (3,171) (2,468)
--------- ---------
Net cash used in financing activities............. (220,058) (203,530)
--------- ---------
Net increase in cash and cash equivalents................... 68,357 58,954
Cash and cash equivalents at beginning of year.............. 224,194 165,240
--------- ---------
Cash and cash equivalents at end of year.................... $ 292,551 $ 224,194
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 580,503 $ 596,327
========= =========
</TABLE>
See Accompanying Notes to Financial Statements -- Income Tax Basis
F-9
<PAGE> 1247
CHAPEL HILL, LIMITED
NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1997 AND 1996
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Chapel Hill, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Tennessee pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated January 24,
1975. The Partnership owns and operates Chapel Woods Townhouses a 140 townhouse
complex, and Chapel Hill Apartments, a 148 unit apartment complex, both located
in Indianapolis, Indiana.
The Partnership's Managing General Partner is Davidson Properties, Inc., an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is
managed by Insignia Residential Group, an affiliate of Insignia.
Basis of Accounting
The financial statements are prepared on the basis used in the preparation
of the Partnership's Federal income tax return and do not purport to present
financial position and results of operations in accordance with generally
accepted accounting principles ("GAAP"). The tax basis used differs from GAAP
primarily because on the tax basis (1) certain rental income received in advance
is recorded, as income in the year received rather than in the year earned, (2)
buildings and related personal property are depreciated using the lives
specified under the accelerated cost recovery system ("ACRS") or the modified
accelerated cost recovery system ("MACRS") instead of over the estimated lives
of the assets, and (3) syndication costs are not amortized.
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
Depreciation
Depreciation is provided for in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property. Under generally
accepted accounting principles, the cost of depreciable assets would be
allocated systematically over their estimated useful lives.
Other Assets
Other assets at December 31, 1997 and 1996 include deferred loan costs of
$121,706 and $146,355, respectively, which are amortized over the term of the
related borrowing. They are shown net of accumulated amortization. Also included
in other assets are syndication costs of $336,142 which are not amortized.
F-10
<PAGE> 1248
CHAPEL HILL, LIMITED
NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no impact on net loss or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. $306,639 $294,035
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$64,840, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $7,265,278 $7,482,165
Second mortgage note payable in interest only monthly
installments of $1,609, at a rate of 7.60% with principal
due November 2002; collateralized by land and buildings... 254,085 254,085
---------- ----------
Principal balance at year end............................... 7,519,363 7,736,250
Less unamortized discount................................... (310,384) (379,756)
---------- ----------
$7,208,979 $7,356,494
========== ==========
</TABLE>
F-11
<PAGE> 1249
CHAPEL HILL, LIMITED
NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................... $ 233,957
1999................................................... 252,370
2000................................................... 272,232
2001................................................... 293,659
2002................................................... 6,467,145
----------
$7,519,363
==========
</TABLE>
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of prepayment or the present value of the excess of interest
which would be incurred at the stated rate under the notes over the interest
which would be incurred at the Treasury constant maturity for U.S. Government
obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1997 1996
TYPE OF TRANSACTION AMOUNT AMOUNT
- ------------------- -------- --------
<S> <C> <C>
Management fee......................................... $119,469 $116,896
Partnership administration fee......................... $ 48,000 $ 48,000
Reimbursement for services to affiliates............... $ 36,247 $ 33,048
Construction oversight fee............................. $ 649 $ --
</TABLE>
F-12
<PAGE> 1250
CHAPEL HILL, LIMITED
FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT ACCOUNTANTS' COMPILATION REPORT THEREON)
F-13
<PAGE> 1251
CHAPEL HILL, LIMITED
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS'
DEFICIT -- INCOME TAX BASIS
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 224,194 $ 165,240
Restricted -- tenant security deposits.................... 46,123 44,494
Accounts receivable......................................... 7,640 12,290
Escrow for taxes............................................ 37,363 29,195
Restricted escrows (Note B)................................. 294,035 315,061
Other assets................................................ 490,879 514,261
Investment properties (Note C):
Land...................................................... 375,000 375,000
Buildings and related personal property................... 9,321,579 9,158,433
----------- -----------
9,696,579 9,533,433
Less accumulated depreciation............................. (7,448,419) (6,951,956)
----------- -----------
2,248,160 2,581,477
----------- -----------
$ 3,348,394 $ 3,662,018
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 33,228 $ 67,186
Tenant security deposits.................................. 47,698 44,701
Other liabilities......................................... 46,417 38,874
Mortgage notes payable (Note C)........................... 7,356,494 7,502,438
Partners' deficit........................................... (4,135,443) (3,991,181)
----------- -----------
$ 3,348,394 $ 3,662,018
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements -- Income Tax Basis
F-14
<PAGE> 1252
CHAPEL HILL, LIMITED
STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS'
DEFICIT -- INCOME TAX BASIS
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 2,147,082 $ 2,170,553
Other income.............................................. 148,711 155,662
----------- -----------
Total revenues.................................... 2,295,793 2,326,215
----------- -----------
Expenses:
Operating (Note D)........................................ 646,150 632,400
General and administrative (Note D)....................... 91,477 89,073
Maintenance............................................... 314,088 506,955
Depreciation.............................................. 496,463 482,968
Interest.................................................. 675,042 688,381
Property taxes............................................ 214,367 235,067
----------- -----------
Total expenses.................................... 2,437,587 2,634,844
----------- -----------
Net loss.................................................... (141,794) (308,629)
Distributions to partners................................... (2,468) (2,046)
Partners' deficit at beginning of year...................... (3,991,181) (3,680,506)
----------- -----------
Partners' deficit at end of year............................ $(4,135,443) $(3,991,181)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements -- Income Tax Basis
F-15
<PAGE> 1253
CHAPEL HILL, LIMITED
STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(141,794) $(308,629)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 496,463 482,968
Amortization of discounts and loan costs............... 79,854 77,384
Change in accounts:
Restricted cash...................................... (1,629) 6,203
Accounts receivable.................................. 4,650 (1,916)
Escrow for taxes..................................... (8,168) 27,475
Other assets......................................... (1,354) --
Accounts payable..................................... (35,585) 37,808
Tenant security deposit liabilities.................. 2,997 (6,916)
Other liabilities.................................... 9,170 (10,568)
--------- ---------
Net cash provided by operating activities......... 404,604 303,809
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (163,146) (256,096)
Deposits to restricted escrows............................ (12,379) (12,490)
Receipts from restricted escrows.......................... 33,405 20,470
--------- ---------
Net cash used in investing activities............. (142,120) (248,116)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (201,062) (186,393)
Distributions to partners................................. (2,468) (2,046)
--------- ---------
Net cash used in financing activities............. (203,530) (188,439)
--------- ---------
Net increase (decrease) in cash............................. 58,954 (132,746)
Cash and cash equivalents at beginning of year.............. 165,240 297,986
--------- ---------
Cash and cash equivalents at end of year.................... $ 224,194 $ 165,240
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 596,327 $ 610,998
========= =========
</TABLE>
See Accompanying Notes to Financial Statements -- Income Tax Basis
F-16
<PAGE> 1254
CHAPEL HILL, LIMITED
NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1996 AND 1995
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Chapel Hill, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Tennessee pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated January 24,
1975. The Partnerships owns and operates Chapel Woods Townhouses a 140 townhouse
complex, and Chapel Hill Apartments, a 148 unit apartment complex, both located
in Indianapolis, Indiana.
The Partnership's Managing General Partner is Davidson Properties, Inc., an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is
managed by Insignia Management Group, an affiliate of Insignia.
Basis of Accounting
The financial statements are prepared on the basis used in the preparation
of the Partnership's Federal income tax return and do not purport to present
financial position and results of operations in accordance with generally
accepted accounting principles ("GAAP"). The tax basis used differs from GAAP
primarily because on the tax basis (1) certain rental income received in advance
is recorded as income in the year received rather than in the year earned, (2)
buildings and related personal property are depreciated using the lives
specified under the accelerated cost recovery system ("ACRS") or the modified
accelerated cost recovery system ("MACRS") instead of over the estimated lives
of the assets, and (3) syndication costs are not amortized.
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
Depreciation
Depreciation is provided for in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property. Under generally
accepted accounting principles, the cost of depreciable assets would be
allocated systematically over their estimated useful lives.
Other Assets
Other assets at December 31, 1996 include deferred loan costs which are
amortized over the term of the related borrowing. They are shown net of
accumulated amortization. Also included in other assets are utility deposits and
syndication costs which are not amortized.
F-17
<PAGE> 1255
CHAPEL HILL, LIMITED
NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation. These reclassifications had no impact on net loss or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the loan were placed into a capital improvement reserve
account to be used for certain capital improvements. The
capital improvements were completed in calendar year
1996...................................................... $ -- $ 23,728
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. 294,035 291,333
-------- --------
$294,035 $315,061
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$64,840, including interest at 7.60% due November 2002;
collateralized by land and buildings...................... $7,482,165 $7,683,228
Second mortgage note payable in interest only monthly
installments of $1,609, at a rate of 7.60% with principal
due November 2002; collateralized by land and buildings... 254,085 254,085
---------- ----------
Principal balance at year end............................... 7,736,250 7,937,313
Less unamortized discount................................... (379,756) (434,875)
---------- ----------
$7,356,494 $7,502,438
========== ==========
</TABLE>
F-18
<PAGE> 1256
CHAPEL HILL, LIMITED
NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
(UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................... $ 216,887
1998................................................... 233,957
1999................................................... 252,370
2000................................................... 272,232
2001................................................... 293,659
Thereafter............................................. 6,467,145
----------
$7,736,250
==========
</TABLE>
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to November 15, 1997. Thereafter, the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of prepayment or the present value of the excess
of interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1996 1995
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- -------- --------
<S> <C> <C>
Management fee......................................... $116,896 $115,300
Partnership administration fee......................... $ 48,000 $ 48,000
Reimbursement for services to affiliates............... $ 33,048 $ 36,142
Construction fee....................................... $ -- $ 23,303
</TABLE>
F-19
<PAGE> 1257
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1258
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1259
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1260
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1261
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-16
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Chestnut
Hill Associates Limited Partnership........ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
</TABLE>
i
<PAGE> 1262
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-71
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-72
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Your Partnership............. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
Distributions and Transfers of Units......... S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-78
LEGAL MATTERS.................................. S-78
EXPERTS........................................ S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1263
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Chestnut Hill Associates Limited Partnership. For each unit that you
tender, you may choose to receive of our Tax-Deferral %
Partnership Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred
to as "Common OP Units"), or $ in cash (subject, in each case to
adjustment for any distributions paid to you during the offer period). If
you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
S-1
<PAGE> 1264
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions
S-2
<PAGE> 1265
paid on the Tax-Deferral Common OP Units have been equivalent to the
dividends paid on AIMCO's Class A Common Stock. We expect this to continue
in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $4,000 per unit for the year ended
December 31, 1997. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis). This is
equivalent to distributions of $
per year on the number of Tax-Deferral % Preferred OP Units or
distributions of $ per year on the number of Tax-Deferral Common OP
Units that you would receive in an exchange for each of your partnership's
units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
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INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
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Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
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activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently own a 22.25% limited partnership interest in your
partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the
S-12
<PAGE> 1275
benefits that your general partner expects to result from the offer. For
example, a partner of your partnership would have no opportunity for
liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Preferred OP Units has prior
distribution rights and the Tax-Deferral % Preferred OP Units rank
equal to six other outstanding classes of Preferred OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
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<PAGE> 1276
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
S-14
<PAGE> 1277
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX
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<PAGE> 1278
MATTERS" STARTING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME
TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO
OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE
ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING
OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we
S-16
<PAGE> 1279
provided much of the information used by Stanger in forming its fairness
opinion. We believe the information provided to Stanger is accurate in all
material respects. You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Consideration to Other Values. In evaluating the offer,
your general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, the general partner is entitled to compensation for its services
as general partner while the general partner of the AIMCO Operating Partnership
is not entitled to any fees.
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<PAGE> 1280
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. Your partnership's agreement of limited partnership
provides that the general partner of your partnership receives a cumulative
annual fee of $75,000 increased by 6% per annum, compounded annually, from your
partnership and may also receive reimbursement for expenses generated in its
capacity as general partner. The property manager received management fees of
$248,814 in 1996, $301,301 in 1997 and $231,420 for the first six months of
1998. We have no current intention of changing the fee structure for your
property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Chestnut Hill Associates Limited
Partnership is a Delaware limited partnership which was formed on July 21, 1986
for the purpose of owning and operating a single apartment property located in
Philadelphia, Pennsylvania, known as "Chestnut Hill Village." Chestnut Hill
Village consists of 830 apartment units. Your partnership has no employees.
Property Management. Since November 1997, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors.
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<PAGE> 1281
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2036, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $26,203,796, payable to Chase Manhattan
Bank, which bears interest at a rate of 8.38%. The mortgage debt is due in
January 2007. Your partnership's agreement of limited partnership also allows
your general partner to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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<PAGE> 1282
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income............ $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses........ (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses......................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation....................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses...... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation...... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization..................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses........... -- -- -- -- -- --
Amortization of management company
goodwill......................... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business................. (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business......... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses......................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................... 11,350 1,341 8,676 523 658 123
Interest expense................... (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships..................... (516) (565) 1,008 (111) -- --
Equity in losses of unconsolidated
partnerships(c).................. (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated subsidiaries(d)... 5,609 (86) 4,636 -- -- --
Amortization of goodwill........... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations............. 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties....................... 2,526 -- 2,720 44 -- --
Provision for income taxes......... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before extraordinary
item............................. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt........... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss).................. $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period).......................... 210 107 147 94 56 48
Total owned apartment units (end of
period).......................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period).......................... 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit............................. $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit............................. $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit............................. $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities....................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities......................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income............ $ 5,805 $ 8,056
Property operating expenses........ (2,263) (3,200)
Owned property management
expenses......................... -- --
Depreciation....................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other income... 6,533 8,069
Management and other expenses...... (5,823) (6,414)
Corporate overhead allocation...... -- --
Other assets, depreciation and
amortization..................... (146) (204)
Owner and seller bonuses........... (204) (468)
Amortization of management company
goodwill......................... -- --
------- --------
360 983
Minority interests in service
company business................. -- --
------- --------
Company's shares of income from
service company business......... 360 983
------- --------
General and administrative
expenses......................... -- --
Interest income.................... -- --
Interest expense................... (4,214) (3,510)
Minority interest in other
partnerships..................... -- --
Equity in losses of unconsolidated
partnerships(c).................. -- --
Equity in earnings of
unconsolidated subsidiaries(d)... -- --
Amortization of goodwill........... -- --
------- --------
Income from operations............. (1,463) 627
Gain on disposition of
properties....................... -- --
Provision for income taxes......... (36) (336)
------- --------
Income (loss) before extraordinary
item............................. (1,499) 291
Extraordinary item -- early
extinguishment of debt........... -- --
------- --------
Net income (loss).................. $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period).......................... 4 4
Total owned apartment units (end of
period).......................... 1,711 1,711
Units under management (end of
period).......................... 29,343 28,422
Basic earnings per Common OP
Unit............................. N/A N/A
Diluted earnings per Common OP
Unit............................. N/A N/A
Distributions paid per Common OP
Unit............................. N/A N/A
Cash flows provided by operating
activities....................... 2,678 2,203
Cash flows used in investing
activities......................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1283
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............... $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)............. 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common OP
Units outstanding.................. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation....................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation....................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets......................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes payable.... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units......... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units.............................. -- -- -- -- -- 107,228
Partners' Capital.................... 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............... $(1,032) $ 14,114
Funds from operations(e)............. N/A N/A
Weighted average number of Common OP
Units outstanding.................. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation....................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation....................... 33,270 33,701
Total assets......................... 39,042 38,914
Total mortgages and notes payable.... 40,873 41,893
Redeemable Partnership Units......... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units.............................. -- --
Partners' Capital.................... (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1284
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1285
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1286
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 1287
SUMMARY FINANCIAL INFORMATION OF CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
The summary financial information of Chestnut Hill Associates Limited
Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The
summary financial information for Chestnut Hill Associates Limited Partnership
for the years ended December 31, 1997 and 1996 and 1995, is based on audited
financial statements. This information should be read in conjunction with such
financial statements, including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Your
Partnership" included herein. See "Index to Financial Statements."
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues......... 4,037,397 0 7,890,090 7,282,832 7,089,955 6,866,983 6,594,086
Net Income/(Loss)............ (22,921) 0 (243,453) (843,418) (416,981) (883,533) (948,512)
Balance Sheet Data:
Real Estate, Net of
Accumulated Depreciation... 23,243,392 0 23,691,534 24,042,391 24,320,820 25,073,935 25,793,445
Total Assets........... 29,446,923 0 29,634,642 30,755,370 26,840,129 27,473,841 28,375,810
Mortgage Notes Payable,
including Accrued
Interest................... 26,387,681 0 26,496,245 26,500,000 21,842,333 21,958,925 22,064,622
Partners'
Capital/(Deficit).......... 2,264,311 0 2,287,232 3,530,685 4,374,103 4,791,084 5,674,617
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per Common OP Unit and
historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 $0 $4,000
</TABLE>
S-25
<PAGE> 1288
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly,
although there can be no assurance, you might receive more consideration if you
do not tender your units and, instead, continue to hold your units and
ultimately receive proceeds from a liquidation of your partnership. However, you
may prefer to receive our offer consideration now rather than wait for uncertain
future net liquidation proceeds. Furthermore, your general partner has no
present intention to liquidate your partnership, and your partnership's
agreement of limited partnership does not require a sale of your partnership's
property by any particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 1289
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
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Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the year ended December 31, 1997 were $4,000 per unit. This is
equivalent to distributions of $ per year on the number of Tax-Deferral %
Preferred OP Units, or distributions of $ per year on the number of
Tax-Deferral Common OP Units, that you would receive in an exchange for each of
your partnership's units. Therefore, distributions with respect to the Preferred
OP Units and Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to your
units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
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MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently own a 22.25% limited partnership interest in your partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for
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investment, business, personal or other purposes, at their option. If your
partnership were to sell its assets and liquidate, you and your partners would
not need to rely upon capitalization of income or other valuation methods to
estimate the fair market value of your partnership's assets. Instead, such
assets would be valued through negotiations with prospective purchasers (in many
cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
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- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to five other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of considerations being offered, or increasing or decreasing the
percentage of outstanding units being sought). Notice of any such extension,
termination or amendment will promptly be disseminated in a manner reasonably
designed to inform unitholders of such change. In the case of an extension of
the offer, the extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., Denver, Colorado
time, on the next business day after the scheduled expiration date of the offer,
in accordance with Rule 14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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<PAGE> 1300
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, which change, in the sole judgment of the AIMCO Operating
Partnership, is or may be materially adverse to your partnership or the
value of your units to the AIMCO Operating Partnership, or the AIMCO
Operating Partnership shall have become aware of any facts relating to your
partnership, its indebtedness or its operations which, in the sole judgment
of the AIMCO Operating Partnership, has or may have material significance
with respect to the value of your partnership or the value of your units to
the AIMCO Operating Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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<PAGE> 1301
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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<PAGE> 1302
that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory
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<PAGE> 1303
permits that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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<PAGE> 1304
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class E
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
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No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
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allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations shall have been made in full
to the holders of Preferred OP Units and any Parity Units to enable them to
receive their Liquidation Preference, any Junior Units shall be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Preferred OP Units and any Parity Units shall not be entitled to share
therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership
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<PAGE> 1308
will not then or in the future jeopardize AIMCO's status as a REIT. As a
condition of such waiver, the AIMCO board of directors may require opinions of
counsel satisfactory to it and/or an undertaking from the applicant with respect
to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 1309
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 1310
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 1311
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 1312
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 1313
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25, and distributions with respect to your units for
the year ended December 31, 1997 were $4,000. This is equivalent to
distributions of $ per year on the number of Tax-Deferral % Preferred
OP Units, or distributions of $ per year on the number of Tax-Deferral
Common OP Units, that you would receive in exchange for each of your
partnership's units. Therefore, distributions with respect to the Preferred
OP Units and Common OP Units that we are offering are expected to be
, immediately following our offer, than the distributions with
respect to your units. See "Comparison of Ownership of Your Units and AIMCO
OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment properties although there are
other ways to value real estate. A liquidation in the future might generate a
higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
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COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
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The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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<PAGE> 1321
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
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<PAGE> 1322
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between the general partner, special limited partner and limited partners of
your partnership, the terms and conditions of any debt encumbering the
partnership's property, and the transaction costs and fees associated with a
sale of the property. Stanger also relied upon the assurance of your
partnership, AIMCO, and the management of the partnership's property that any
financial statements, budgets, pro forma statements, projections, capital
expenditure estimates, debt, value estimates and other information contained in
this Prospectus Supplement or provided or communicated to Stanger were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
S-60
<PAGE> 1323
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Delaware law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Chestnut Hill Village. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2036. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, improve, The purpose of the AIMCO Operating Partnership is to
maintain, operate, lease, sell, dispose of and conduct any business that may be lawfully conducted by
otherwise deal with your partnership's property. a limited partnership organized pursuant to the
Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as
agreement of limited partnership, your partnership may amended from time to time, or any successor to such
perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"),
the business of your partnership including acquiring provided that such business is to be conducted in a
additional real or personal property, borrowing money manner that permits AIMCO to be qualified as a REIT,
and creating liens. unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
S-61
<PAGE> 1324
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 250 units for cash time to the limited partners and to other persons, and
and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital
of limited partnership. The capital contribution need contributions as may be established by the general
not be equal for all limited partners and no action or partner in its sole discretion. The net capital
consent is required in connection with the admission of contribution need not be equal for all OP Unitholders.
any additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
In addition, the general partner, without the consent Unitholder. See "Description of OP Units -- Management
of the limited partners, may sell additional limited by the AIMCO GP" in the accompanying Prospectus.
partnership interests on such terms and conditions and Subject to Delaware law, any additional partnership
the additional limited partners will have such rights interests may be issued in one or more classes, or one
and obligations as the general partner determines; or more series of any of such classes, with such
provided that such additional limited partnership designations, preferences and relative, partici-
interests may not decrease pro rata the interests of pating, optional or other special rights, powers and
the original limited partners by more than 25% and such duties as shall be determined by the general partner,
limited partners may purchase the additional limited in its sole and absolute discretion without the
partnership interests pro rata in accordance with the approval of any OP Unitholder, and set forth in a
percentage of interests they own for a period of 45 written document thereafter attached to and made an
days after notice of such sale is given to the original exhibit to the AIMCO Operating Partnership Agreement.
limited partners.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute
partnership, your partnership may contract with the funds or other assets to its subsidiaries or other
general partner or its affiliates for services, persons in which it has an equity investment, and such
including insurance brokerage, insurance coverage persons may borrow funds from the AIMCO Operating
(including property, liability and title insurance), Partnership, on terms and conditions established in the
additional management services, services relating to sole and absolute discretion of the general partner. To
leasing, refinancing or additional renovation and the extent consistent with the business purpose of the
brokerage services in the event of a sale of your AIMCO Operating Partnership and the permitted
partnership's property. The general partner may provide activities of the general partner, the AIMCO Operating
goods and services to your partnership at rates no Partnership may transfer assets to joint ventures,
greater than prevailing market rates. Your partnership limited liability companies, partnerships,
may also borrow money from partners or their affiliates corporations, business trusts or other business
if such loan is evidenced by a promissory note, bears entities in which it is or thereby becomes a
interest at a commercially reasonable rate not in participant upon such terms and subject to such
excess of 3% above the "prime rate" of the Bank of conditions consistent with the AIMCO Operating Part-
Boston and the obligation is subordinate to the nership Agreement and applicable law as the general
obligations of your partnership to pay unrelated partner, in its sole and absolute discretion, believes
creditors. to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money and issue indebtedness in furtherance restrictions on borrowings, and the general partner has
of any of the purposes of your partnership, and to full power and authority to borrow money on behalf of
secure any such debt by mortgage, pledge, or other lien the AIMCO Operating Partnership. The AIMCO Operating
on any of the assets of your partnership. Partnership has credit agreements that restrict, among
other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
S-62
<PAGE> 1325
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners to inspect the register with a statement of the purpose of such demand and at
listing the names of all limited partners and the such OP Unitholder's own expense, to obtain a current
number of Units owned by each limited partner at any list of the name and last known business, residence or
reasonable time during normal business hours at the mailing address of the general partner and each other
principal office of your partnership. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the All management powers over the business and affairs of
exclusive right to manage and control the business of the AIMCO Operating Partnership are vested in AIMCO-GP,
your partnership, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder
signature and to take any action it deems necessary or has any right to participate in or exercise control or
advisable in connection with the business of your management power over the business and affairs of the
partnership. Limited partners have no authority or AIMCO Operating Partnership. The OP Unitholders have
right to act for or bind your partnership or the right to vote on certain matters described under
participate in or have any control over your "Comparison of Ownership of Your Units and AIMCO OP
partnership business, except as required by law. Units -- Voting Rights" below. The general partner may
not be removed by the OP Unitholders with or without
cause.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general
and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating
accountable, in damages or otherwise to your Partnership for losses sustained, liabilities incurred
partnership or any limited partner for any acts or benefits not derived as a result of errors in
performed or any failure to act by any of them if they judgment or mistakes of fact or law of any act or
determined, in good faith, that such act or failure to omission if the general partner acted in good faith.
act was in the best interests of your partnership and The AIMCO Operating Partnership Agreement provides for
such course of conduct did not constitute negligence or indemnification of AIMCO, or any director or officer of
misconduct on the part of the general partner. In AIMCO (in its capacity as the previous general partner
addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general
entitled to indemnification by your partnership against partner, any officer or director of general partner or
any loss, damage, liability, cost or expense incurred the AIMCO Operating Partnership and such other persons
by them in connection with your partnership, provided as the general partner may designate from and against
that such loss, damage, liability, cost or expense was all losses, claims, damages, liabilities, joint or
not the result of negligence or misconduct of any such several, expenses (including legal fees), fines,
entity provided, however, that such indemnity will be settlements and other amounts incurred in connection
paid out of and only to the extent of partnership with any actions relating to the operations of the
assets. Neither the general partner, any of its AIMCO Operating Partnership, as set forth in the AIMCO
affiliates nor any placing brokers will be indemnified Operating Partnership Agreement. The Delaware Limited
for any loss, damage or cost resulting from the Partnership Act provides that subject to the standards
violation of any Federal or state securities law unless and restrictions, if any, set forth in its partnership
either (a) either (1) there has been a successful agreement, a limited partnership may, and shall have
adjudication on the merits of each count involving such the power to, indemnify and hold harmless any partner
securities law violations, or other
</TABLE>
S-63
<PAGE> 1326
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
(2) such claims have been dismissed with prejudice on person from and against any and all claims and demands
the merits by a court of competent jurisdiction or (3) whatsoever. It is the position of the Securities and
a court of competent jurisdiction approves such a Exchange Commission that indemnification of directors
settlement and (b) a court either (1) approves the and officers for liabilities arising under the
settlement and finds that indemnification of the Securities Act is against public policy and is
settlement and related costs should be made or (2) unenforceable pursuant to Section 14 of the Securities
approves indemnification of litigation costs if a Act of 1933.
successful defense is made. In such claim for
indemnification for Federal or state securities law
violation, the party seeking indemnification must place
before the court the position of the SEC and any other
applicable regulatory agency with respect of the issue
of indemnification for securities law violations.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general
vote of the limited partners owning a majority of the partner may not be removed as general partner of the
outstanding units. A general partner may withdraw AIMCO Operating Partnership by the OP Unitholders with
voluntarily from your partnership only if there is or without cause. Under the AIMCO Operating Partnership
another general partner or a successor is elected. A Agreement, the general partner may, in its sole
limited partner may not transfer his interests without discretion, prevent a transferee of an OP Unit from
the consent of the general partner which may be becoming a substituted limited partner pursuant to the
withheld at the sole discretion of the general partner. AIMCO Operating Partnership Agreement. The general
partner may exercise this right of approval to deter,
delay or hamper attempts by persons to acquire a
controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to comply with tax in the AIMCO Operating Partnership Agreement, whereby
laws and correct any ambiguity or error. Amendments of the general partner may, without the consent of the OP
specified provisions of your partnership's agreement of Unitholders, amend the AIMCO Operating Partnership
limited partnership may be made only with the prior Agreement, amendments to the AIMCO Operating
written consent of all partners. Other amendments must Partnership Agreement require the consent of the
be approved by the limited partners owning more than holders of a majority of the outstanding Common OP
50% of the units and the general partner. Units, excluding AIMCO and certain other limited
exclusions (a "Majority in Interest"). Amendments to
the AIMCO Operating Partnership Agreement may be
proposed by the general partner or by holders of a
Majority in Interest. Following such proposal, the
general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives a cumulative annual fee of $75,000 in 1986, capacity as general partner of the AIMCO Operating
increasing by 6% per annum. Moreover, the general Partnership. In addition, the AIMCO Operating Part-
partner or certain affiliates may be entitled to nership is responsible for all expenses incurred
compensation for additional services rendered. relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
S-64
<PAGE> 1327
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, limited partners are not liable for any negligence, no OP Unitholder has personal liability for
debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and
partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for
payments of his capital contributions when due under the AIMCO Operating Partnership's debts and obligations
your partnership's agreement of limited partnership. is generally limited to the amount of their invest-
After its capital contribution has been fully paid, no ment in the AIMCO Operating Partnership. However, the
limited partner is, except as otherwise required by limitations on the liability of limited partners for
law, required to make any further capital contribution the obligations of a limited partnership have not been
or lend any funds to your partnership. clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must diligently and partnership agreement, Delaware law generally requires
faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to
required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes
your partnership as necessary to conduct the business its limited partners the highest duties of good faith,
of your partnership and must at all times act in a fairness and loyalty and which generally prohibit such
fiduciary manner toward your partnership and the general partner from taking any action or engaging in
limited partners. The general partner at all times has any transaction as to which it has a conflict of
a fiduciary responsibility for the safekeeping and use interest. The AIMCO Operating Partnership Agreement
of all partnership funds and assets. However, the expressly authorizes the general partner to enter into,
general partner of its affiliates may engage in or on behalf of the AIMCO Operating Partnership, a right
possess an interest in other business ventures of every of first opportunity arrangement and other conflict
nature and description including, without limitation, avoidance agreements with various affiliates of the
real estate business ventures whether or not such other AIMCO Operating Partnership and the general partner, on
enterprises may be in competition with any activities such terms as the general partner, in its sole and
of your partnership. absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-65
<PAGE> 1328
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding the holders of the Preferred OP respect to certain limited matters
units, the limited partners may Units will have the same voting such as certain amendments and
amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating
of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain
certain limitations; dissolve and Units" in the accompanying transactions such as the
terminate your partnership; remove Prospectus. So long as any institution of bankruptcy
a general partner and elect a new Preferred OP Units are outstand- proceedings, an assignment for the
general partner; approve or ing, in addition to any other vote benefit of creditors and certain
disapprove the sale of all or or consent of partners required by transfers by the general partner of
substantially all of the assets of law or by the AIMCO Operating its interest in the AIMCO Operating
your partnership; cause Partnership Agree- Part-
</TABLE>
S-66
<PAGE> 1329
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
your partnership to engage in any ment, the affirmative vote or nership or the admission of a
business other than as set forth in consent of holders of at least 50% successor general partner.
your partnership's agreement of of the outstanding Preferred OP
limited partnership; cause your Units will be necessary for Under the AIMCO Operating Partner-
partnership to consolidate or merge effecting any amendment of any of ship Agreement, the general partner
with another entity or cause your the provisions of the Partnership has the power to effect the
partnership to institute bankruptcy Unit Designation of the Preferred acquisition, sale, transfer,
proceedings. Such vote is also OP Units that materially and exchange or other disposition of
necessary to approve transactions adversely affects the rights or any assets of the AIMCO Operating
other than the decrease, increase preferences of the holders of the Partnership (including, but not
or refinancing of any mortgage Preferred OP Units. The creation or limited to, the exercise or grant
which may result in proceeds which issuance of any class or series of of any conversion, option,
do not constitute Cash Flow (as partnership units, including, privilege or subscription right or
defined in your partnership's without limitation, any partner- any other right available in
agreement of limited partnership). ship units that may have rights connection with any assets at any
senior or superior to the Preferred time held by the AIMCO Operating
A general partner may cause the OP Units, shall not be deemed to Partnership) or the merger,
dissolution of the your partnership materially adversely affect the consolidation, reorganization or
by retiring. Your partnership may rights or preferences of the other combination of the AIMCO
be continued by the remaining holders of Preferred OP Units. With Operating Partnership with or into
general partner if, in its sole respect to the exercise of the another entity, all without the
discretion, it elects to do so. If above described voting rights, each consent of the OP Unitholders.
there is no general partner to Preferred OP Units shall have one
continue your partnership, the (1) vote per Preferred OP Unit. The general partner may cause the
limited partners, within ninety dissolution of the AIMCO Operating
days of the retirement, may elect Partnership by an "event of
to continue your partnership by withdrawal," as defined in the
electing a substitute general Delaware Limited Partnership Act
partner by unanimous consent. (including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Cash Flow (as $ per Preferred OP Unit; tribute quarterly all, or such
defined in your partnership's provided, however, that at any time portion as the general partner may
agreement of limited partnership) and from time to time on or after in its sole and absolute discretion
are made at reasonable intervals the fifth anniversary of the issue determine, of Available Cash (as
during the fiscal year as date of the Preferred OP Units, the defined in the AIMCO Operating
determined by the general partner, AIMCO Operating Partnership may Partnership Agreement) generated by
and in any event are made within 60 adjust the annual distribution rate the AIMCO Operating Partnership
days after the close of each fiscal on the Preferred OP Units to the during such quarter to the general
year. The distributions payable to lower of (i) % plus the annual partner, the special limited
the partners are not fixed in interest rate then applicable to partner and the holders of Common
amount and depend upon the U.S. Treasury notes with a maturity OP Units on the record date
operating results and net sales or of five years, and (ii) the annual established by the general partner
refinancing proceeds available from dividend rate on the most recently with respect to such quarter, in
the disposition of your issued AIMCO non-convertible accordance with their respective
partnership's assets. Your preferred stock which ranks on a interests in the AIMCO Operating
partnership has made distri- parity with its Class H Cumu- Partnership on such record date.
butions in the past and is Holders of any other Pre-
projected to make distributions in
1998.
</TABLE>
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<PAGE> 1330
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person other than a Preferred OP Units and the OP Units. The AIMCO Operating Part-
minor, except in limited Preferred OP Units are not listed nership Agreement restricts the
circumstances, and may be substi- on any securities exchange. The transferability of the OP Units.
tuted as a limited partner by such Preferred OP Units are subject to Until the expiration of one year
person if: (1) the transfer restrictions on transfer as set from the date on which an OP
complies with the then-applicable forth in the AIMCO Operating Unitholder acquired OP Units,
rules and regulations of any Partnership Agreement. subject to certain exceptions, such
governmental authority with OP Unitholder may not transfer all
jurisdiction over the disposition, Pursuant to the AIMCO Operating or any portion of its OP Units to
(2) except in specified Partnership Agreement, until the any transferee without the consent
circumstances, the interest expiration of one year from the of the general partner, which
transferred is not less than 1/2 date on which a holder of Preferred consent may be withheld in its sole
Unit, (3) the transfer, when added OP Units acquired Preferred OP and absolute discretion. After the
to all other assignment taking Units, subject to certain expiration of one year, such OP
place in the preceding 12 month exceptions, such holder of Unitholder has the right to
does not result in termination of Preferred OP Units may not transfer transfer all or any portion of its
the partnership for tax purposes, all or any portion of its Pre- OP Units to any person, subject to
(4) a written assignment has been ferred OP Units to any transferee the satisfaction of certain
duly executed and acknowledged by without the consent of the general conditions specified in the AIMCO
the assignor and assignee, (5) the partner, which consent may be Operating Partnership Agreement,
approval of the general partner withheld in its sole and absolute including the general partner's
which may be withheld in the sole discretion. After the expiration of right of first refusal. See
and absolute discretion of the one year, such holders of Preferred "Description of OP Units --
general partner has been granted OP Units has the right to transfer Transfers and Withdrawals" in the
and (6) the assignor and assignee all or any portion of its Preferred ac-
have complied OP Units to
</TABLE>
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<PAGE> 1331
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
with such other conditions as set any person, subject to the companying Prospectus.
forth in your partnership's satisfaction of certain conditions
agreement of limited partnership. specified in the AIMCO Operating After the first anniversary of
Partnership Agreement, including becoming a holder of Common OP
There are no redemption rights the general partner's right of Units, an OP Unitholder has the
associated with your units. first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-69
<PAGE> 1332
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives a
cumulative annual fee of $75,000 in 1986, increasing by 6% per annum from your
partnership. The property manager received management fees of $248,814 in 1996,
$301,301 in 1997 and $231,420 for the first six months of 1998. The AIMCO
Operating Partnership has no current intention of changing the fee structure for
the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
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<PAGE> 1333
YOUR PARTNERSHIP
GENERAL
Chestnut Hill Associates Limited Partnership is a Delaware limited
partnership. Insignia acquired your partnership in November 1997. AIMCO acquired
Insignia in October, 1998. There are currently a total of 194 limited partners
of your partnership and a total of 250 units of your partnership outstanding.
Your partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the single apartment property
described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on July 21, 1986 for the purpose of owning and
operating a single apartment property located in Philadelphia, Pennsylvania,
known as "Chestnut Hill Village." Your partnership's property consists of 830
apartment units. There are 478 one-bedroom apartments, 307 two-bedroom
apartments and 36 three-bedroom apartments. The total rentable square footage of
your partnership's property is 821,141 square feet. The average annual rent per
apartment unit is approximately $8,644.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since November 1997, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $248,814, $301,301 and $231,420, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2036
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All
S-71
<PAGE> 1334
capital improvement and renovation costs are expected to be paid from operating
cash flows, cash reserves, or from short-term or long-term borrowings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $26,203,796, payable to Chase Manhattan Bank, which bears
interest at a rate of 8.38%. The mortgage debt is due in January 2007. Your
partnership's agreement of limited partnership also allows the general partner
of your partnership to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
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<PAGE> 1335
Below is selected financial information for Chestnut Hill Associates
Limited Partnership taken from the financial statements described above. See
"Index to Financial Statements."
<TABLE>
<CAPTION>
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
-----------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
--------------------------- -----------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash
Equivalents.......... 3,839,553 Not 3,738,778 4,621,527 961,871 606,566 555,030
Land & Building........ 39,518,803 Available 39,189,654 37,985,931 36,856,639 36,307,030 35,753,703
Accumulated
Depreciation......... (16,275,411) (15,498,120) (13,943,540) (12,535,819) (11,233,095) (9,960,258)
Other Assets........... 2,363,978 2,204,330 2,091,452 1,557,438 1,793,340 2,027,335
------------ ------------ ------------ ------------ ------------ ------------ -----------
Total
Assets...... 29,446,923 29,634,642 30,755,370 26,840,129 27,473,841 28,375,810
============ ============ ============ ============ ============ ============ ===========
Mortgage & Accrued
Interest............. 26,387,681 26,496,245 26,500,000 21,842,333 21,958,925 22,064,622
Other Liabilities...... 794,931 851,165 724,685 623,693 723,832 636,571
------------ ------------ ------------ ------------ ------------ ------------ -----------
Total
Liabilities.. 27,182,612 27,347,410 27,224,685 22,466,026 22,682,757 22,701,193
------------ ------------ ------------ ------------ ------------ ------------ -----------
Partners Capital
(Deficit)............ 2,264,311 2,287,232 3,530,685 4,374,103 4,791,084 5,674,617
============ ============ ============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue..................... 3,562,418 Not 7,152,626 6,716,768 6,487,969 6,364,686 6,169,468
Other Income....................... 474,979 Available 737,464 566,064 601,986 502,297 424,618
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue............. 4,037,397 7,890,090 7,282,832 7,089,955 6,866,983 6,594,086
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses................. 1,619,701 3,288,580 3,405,517 3,063,528 3,328,472 3,116,427
General & Administrative........... 181,702 216,285 154,954 196,106 190,698 217,652
Depreciation....................... 777,291 1,554,580 1,407,721 1,302,724 1,272,838 1,244,363
Interest Expense................... 1,120,021 2,286,201 2,361,533 2,140,089 2,150,984 2,160,425
Property Taxes..................... 361,603 787,897 796,525 804,489 807,524 803,731
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses............ 4,060,318 8,133,543 8,126,250 7,506,936 7,750,516 7,542,598
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... (22,921) (243,453) (843,418) (416,981) (883,533) (948,512)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
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<PAGE> 1336
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein. Due to this
partnership being a recent acquisition, very little discussion is available for
variances.
Results of Operations
Six Months Ended June 30, 1998
Due to this partnership being a recent acquisition no data is available for
the six months ended June 30, 1997.
Net Income
Your partnership recognized a net loss of $22,921 for the six months ended
June 30, 1998.
Revenues
Rental and other property revenues from the partnership's property totaled
$4,037,397 for the six months ended June 30, 1998.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,619,701 for
the six months ended June 30, 1998. Management expenses totaled $231,420 for the
six months ended June 30, 1998.
General and Administrative Expenses
General and administrative expenses totaled $181,702 for the six months
ended June 30, 1998.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $1,120,021 for the six months ended June 30, 1998.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized a net loss of $243,453 for the year ended
December 31, 1997, compared to a loss of $843,418 for the year ended December
31, 1996. The increase in net income of $599,965, or 71.13% was primarily the
result of increased revenues. These factors are discussed in more detail in the
following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$7,890,090 for the year ended December 31, 1997, compared to $7,282,832 for the
year ended December 31, 1996, an increase of $607,258, or 8.34%. This is
primarily due to an increase in occupancy and rental rates.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $3,288,580 for
the year ended December 31, 1997, compared to $3,405,517 for the year ended
December 31,
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<PAGE> 1337
1996, a decrease of $116,937 or 3.43%. Management expenses totaled $301,301 for
the year ended December 31, 1997, compared to $248,814 for the year ended
December 31, 1996, an increase of $52,487, or 21.09%. The increase resulted from
increased revenues, as management fees are calculated based on a percentage of
revenues.
General and Administrative Expenses
General and administrative expenses totaled $216,285 for the year ended
December 31, 1997 compared to $154,954 for the year ended December 31, 1996, an
increase of $61,331 or 39.58%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $2,286,201 for the year ended December 31, 1997, compared to
$2,361,533 for the year ended December 31, 1996, a decrease of $75,332, or
3.19%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $843,418 for the year ended
December 31, 1996, compared to a net loss of $416,981 for the year ended
December 31, 1995. The decrease of $426,437, or 102.27% was primarily the result
of an increase in operating expenses in excess of an increase in revenues. These
factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$7,282,832 for the year ended December 31, 1996, compared to $7,089,955 for the
year ended December 31, 1995, an increase of $192,877, or 2.72%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $3,405,517 for
the year ended December 31, 1996, compared to $3,063,528 for the year ended
December 31, 1995, an increase of $341,989 or 11.16%. Management expenses
totaled $248,814 for the year ended December 31, 1996, compared to $243,532 for
the year ended December 31, 1995, an increase of $5,282, or 2.17%.
General and Administrative Expenses
General and administrative expenses totaled $154,954 for the year ended
December 31, 1996 compared to $196,106 for the year ended December 31, 1995, a
decrease of $41,152 or 20.98%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $2,361,533 for the year ended December 31, 1996, compared to
$2,140,089 for the year ended December 31, 1995, a decrease of $221,444, or
10.35%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $3,839,553 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
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<PAGE> 1338
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership and
its affiliates are not liable, responsible or accountable, in damages or
otherwise to your partnership or any limited partner for any acts performed or
any failure to act by any of them if they determined, in good faith, that such
act or failure to act was in the best interests of your partnership and such
course of conduct did not constitute negligence or misconduct on the part of the
general partner. As a result, unitholders might have a more limited right of
action in certain circumstances than they would have in the absence of such a
provision in your partnership's agreement of limited partnership. The general
partner of your partnership is owned by AIMCO. See "Conflicts of Interest".
The general partner and its affiliates are entitled to indemnification by
your partnership against any loss, damage, liability, cost or expense incurred
by them in connection with your partnership, provided that such loss, damage,
liability, cost or expense was not the result of negligence or misconduct of any
such entity provided, however, that such indemnity will be paid out of and only
to the extent of Partnership assets. Neither the general partner, any of its
affiliates nor any placing brokers will be indemnified for any loss, damage or
cost resulting from the violation of any Federal or state securities law unless
either (a) either (1) there has been a successful adjudication on the merits of
each count involving such securities law violations, (2) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction or
(3) a court of competent jurisdiction approves such a settlement and (b) a court
either (1) approves the settlement and finds that indemnification of the
settlement and related costs should be made or (2) approves indemnification of
litigation costs if a successful defense is made. In such claim for
indemnification for Federal or state securities law violation, the party seeking
indemnification must place before the court the position of the SEC and any
other applicable regulatory agency with respect of the issue of indemnification
for securities law violations. As part of its assumption of liabilities in the
consolidation, AIMCO will indemnify the general partner of your partnership and
their affiliates for periods prior to and following the consolidation to the
extent of the indemnity under the terms of your partnership's agreement of
limited partnership and applicable law.
Your partnership will not incur the cost of the portion of any insurance
which insures any party against any liabilities as to which such part is
prohibited from being indemnified under your partnership's agreement of limited
partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 0
1995........................................................ 0
1996........................................................ 0
1997........................................................ 4,000
1998 (through June 30)...................................... 0
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or
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<PAGE> 1339
maintain information regarding the prices at which secondary sale transactions
in the units have been effectuated. The general partner of your partnership
estimates, based solely on the transfer records of your partnership (or your
partnership's transfer agent), that there have been no units transferred in sale
transactions (excluding transactions believed to be between related parties,
family members or the same beneficial owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
AIMCO currently owns a 22.25% limited partnership interest in your
partnership. Except as described above, neither AIMCO, nor, to the best of its
knowledge, any of its affiliates, (i) beneficially own or have a right to
acquire any units, (ii) have effected any transaction in the units, or (iii)
have any contract, arrangement, understanding or relationship with any other
person with respect to any securities of your partnership, including, but not
limited to, contracts, arrangements, understandings or relationships concerning
transfer or voting thereof, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) management fees in its capacity as general partner
of your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ---------------
<S> <C>
1994........................................................ $111,169
1995........................................................ 121,032
1996........................................................ 119,543
1997........................................................ 99,071
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... $243,532
1996........................................... 248,814
1997........................................... 301,301
1998 (through June 30)......................... 231,420
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-77
<PAGE> 1340
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Chestnut Hill Associates Limited Partnership at
December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this
Prospectus Supplement have been audited by Reznick Fedder & Silverman,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
S-78
<PAGE> 1341
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statement of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statement of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-8
Balance Sheets as of December 31, 1997 and 1996............. F-9
Statements of Operations for the years ended December 31,
1997 and 1996............................................. F-10
Statements of Partners' Equity for the years ended December
31, 1997 and 1996......................................... F-11
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-12
Notes to Financial Statements............................... F-13
Independent Auditors' Report................................ F-19
Balance Sheets as of December 31, 1996 and 1995............. F-20
Statements of Operations for the years ended December 31,
1996 and 1995............................................. F-21
Statements of Partners' Equity for the years ended December
31, 1996 and 1995......................................... F-22
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-23
Notes to Financial Statements............................... F-24
</TABLE>
F-1
<PAGE> 1342
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 3,839,553
Other Assets................................................ 2,363,978
Investment Property:
Land...................................................... 4,740,951
Building and related personal property.................... 34,777,852
------------
39,518,803
Less: Accumulated depreciation............................ (16,275,411) 23,243,392
------------ -----------
Total Assets...................................... $29,446,923
===========
LIABILITIES AND PARTNERS' CAPITAL
Other Accrued Liabilities................................... $ 794,931
Notes Payable............................................... 26,387,681
Partners' Capital........................................... 2,264,311
-----------
Total Liabilities and Partners' Capital........... $29,446,923
===========
</TABLE>
F-2
<PAGE> 1343
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Revenues:
Rental Income............................................. $3,562,418
Other Income.............................................. 474,979
----------
Total Revenues.................................... 4,037,397
Expenses:
Operating Expenses........................................ 1,619,701
General and Administrative Expenses....................... 181,702
Depreciation Expense...................................... 777,291
Interest Expense.......................................... 1,120,021
Property Tax Expense...................................... 361,603
----------
Total Expenses.................................... 4,060,318
Net Income (Loss)................................. $ (22,921)
==========
</TABLE>
F-3
<PAGE> 1344
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Operating Activities:
Net Income (loss)......................................... $ (22,921)
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 777,291
Changes in accounts:
Receivables and deposits and other assets............ (159,648)
Accounts Payable and accrued expenses................ (56,234)
----------
Net cash provided by (used in) operating
activities........................................ 538,488
----------
Investing Activities:
Property improvements and replacements.................... (329,149)
----------
Net cash provided by (used in) investing
activities........................................ (329,149)
----------
Financing Activities:
Payments on mortgage...................................... (108,564)
----------
Net cash provided by (used in) financing
activities........................................ (108,564)
----------
Net increase (decrease) in cash and cash
equivalents....................................... 100,775
Cash and cash equivalents at beginning of year.............. 3,738,778
----------
Cash and cash equivalents at end of period.................. $3,839,553
==========
</TABLE>
F-4
<PAGE> 1345
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Chestnut Hill Associates
Limited Partnership as of June 30, 1998 and for the six months ended June 30,
1998 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
all such adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 1346
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997 AND 1996
F-6
<PAGE> 1347
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-8
Financial Statements
Balance Sheets............................................ F-9
Statements of Operations.................................. F-10
Statements of Partners' Equity............................ F-11
Statements of Cash Flows.................................. F-12
Notes to Financial Statements............................. F-13
</TABLE>
F-7
<PAGE> 1348
INDEPENDENT AUDITORS' REPORT
To the Partners
Chestnut Hill Associates Limited Partnership
We have audited the accompanying balance sheets of Chestnut Hill Associates
Limited Partnership, a Delaware limited partnership, as of December 31, 1997 and
1996, and the related statements of operations, partners' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chestnut Hill Associates
Limited Partnership as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ REZNICK FEDDERS & SILVERMAN
Bethesda, Maryland
February 2, 1998
F-8
<PAGE> 1349
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment in real estate
Land...................................................... $ 4,740,951 $ 4,740,951
Building and improvements................................. 30,560,768 30,255,690
Personal property......................................... 3,887,935 2,989,290
----------- -----------
39,189,654 37,985,931
Less accumulated depreciation.......................... 15,498,120 13,943,540
----------- -----------
23,691,534 24,042,391
----------- -----------
Cash and cash equivalents................................. 3,228,632 4,164,609
Tenant security deposits -- funded........................ 510,146 456,918
Mortgage reserves held in escrow.......................... 1,579,705 1,343,384
Mortgage costs, not of accumulated amortization of $67,720
and $1,080, respectively............................... 598,680 400,320
Other assets.............................................. 25,945 347,748
----------- -----------
5,943,108 6,712,979
----------- -----------
$29,634,642 $30,755,370
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities applicable to investment in real property
Mortgage payable.......................................... $26,312,360 $26,500,000
Other liabilities
Tenants' security deposits................................ 475,379 455,681
Accounts payable.......................................... 88,667 64,238
Accrued interest payable.................................. 183,885 --
Accrued expenses.......................................... 287,119 204,766
----------- -----------
Total liabilities...................................... 27,347,410 27,224,685
Commitments................................................. -- --
Partners' equity............................................ 2,287,232 3,530,685
----------- -----------
$29,634,642 $30,755,370
=========== ===========
</TABLE>
See notes to financial statements
F-9
<PAGE> 1350
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenue
Rental income............................................. $7,152,626 $6,716,768
Interest income........................................... 139,438 41,762
Other income.............................................. 598,026 524,302
---------- ----------
7,890,090 7,282,832
---------- ----------
Operating expenses
Leasing................................................... 335,574 241,088
General and administrative................................ 216,285 154,954
Management fees........................................... 301,301 248,814
Utilities................................................. 1,013,814 1,208,381
Repairs and maintenance................................... 829,254 894,114
Insurance................................................. 228,999 244,869
Taxes..................................................... 787,897 796,525
---------- ----------
3,713,124 3,788,745
---------- ----------
Other expenses
Depreciation.............................................. 1,554,580 1,407,721
Amortization.............................................. 66,640 64,045
Interest expense.......................................... 2,286,201 2,361,533
Other expenses............................................ 512,998 504,206
---------- ----------
4,420,419 4,337,505
---------- ----------
Total expenses......................................... 8,133,543 8,126,250
---------- ----------
Net loss............................................... $ (243,453) $ (843,418)
========== ==========
Net loss allocated to CHA Properties, Inc................... $ (2,435) $ (370)
========== ==========
Net loss allocated to WFA................................... $ (14,607) $ (58,669)
========== ==========
Net loss allocated to Investor Limited Partners............. $ (226,411) $ (784,379)
========== ==========
Net loss per unit outstanding -- Investor Limited
Partners.................................................. $ (906) $ (3,138)
========== ==========
Weighted average number of outstanding...................... $ 250 $ 250
========== ==========
</TABLE>
See notes to financial statements
F-10
<PAGE> 1351
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
WINTHROP INVESTOR
FINANCIAL LIMITED CHA
ASSOCIATES PARTNERS PROPERTIES, INC. TOTAL
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........... $(1,649,954) $ 6,024,057 $ -- $ 4,374,103
Transfer of interest................. 227,552 -- (227,552) --
Net loss............................. (58,669) (784,379) (370) (843,418)
----------- ----------- --------- -----------
Balance, December 31, 1996........... (1,481,071) 5,239,678 (227,922) 3,530,685
Distributions to partners............ -- (1,000,000) -- (1,000,000)
Net loss............................. (14,607) (226,411) (2,435) (243,453)
----------- ----------- --------- -----------
Balance, December 31, 1997........... $(1,495,678) $ 4,013,267 $(230,357) $ 2,287,232
=========== =========== ========= ===========
</TABLE>
See notes to financial statements
F-11
<PAGE> 1352
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (243,453) $ (843,418)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation ad amortization........................... 1,621,220 1,471,766
(Increase) decrease in mortgage reserves held in
escrow............................................... 36,006 (167,588)
(Increase) decrease in other assets.................... 321,803 (208,170)
Increase (decrease) in accounts payable................ 24,429 (57,768)
Increase in accrued expenses........................... 82,353 114,454
Net security deposits (paid) received.................. (33,530) 7,764
Increase (decrease) in accrued interest payable........ 183,885 (179,639)
----------- ------------
Net cash provided by operating activities............ 1,992,713 137,401
----------- ------------
Cash flows from investing activities
Investment in real estate................................. (1,203,723) (1,129,292)
Net deposits to/receipts from reserve for replacements.... (272,327) 126,930
----------- ------------
Net cash used in investing activities................ (1,476,050) (1,002,362)
----------- ------------
Cash flows from financing activities
Distributions to partners................................. (1,000,000) --
Payments on mortgage...................................... (187,640) (21,662,694)
Proceeds from mortgage loan............................... -- 26,500,000
Increase in mortgage costs................................ (265,000) (349,231)
----------- ------------
Net cash (used in) provided by financing
activities........................................ (1,452,640) 4,488,075
----------- ------------
Net (decrease) increase in cash and cash
equivalents....................................... (935,977) 3,623,114
Cash and cash equivalents, beginning........................ 4,164,609 541,495
----------- ------------
Cash and cash equivalents, end.............................. $ 3,228,632 $ 4,164,609
=========== ============
Supplemental disclosure of cash flow information
Cash paid during the year for interest.................... $ 2,102,316 $ 2,541,172
=========== ============
</TABLE>
See notes to financial statements
F-12
<PAGE> 1353
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Chestnut Hill Associates Limited Partnership, a Delaware limited
partnership, was formed in July 1986 to acquire, renovate and operate an
apartment complex known as Chestnut Hill (the "Property"). The Property consists
of an 830-unit garden apartment and townhouse development located on 31.2 acres
of land in Philadelphia, Pennsylvania. The Partnership will terminate on
December 31, 2036, or earlier upon the occurrence of certain events specified in
the Partnership Agreement. The general partner of the Partnership was Winthrop
Financial Associates. A Limited Partnership, a Maryland Limited Partnership
("WFA"). The initial limited partners of the Partnership were The Winthrop
Properties, Inc. and WFA.
Prior to December 16, 1996 profits and losses from normal operations were
allocated 7% to WFA and 93% to the Investor Limited Partners. Cash flow from
operations were allocated 3% to WFA and 97% to the Investor Limited Partners.
Effective December 16, 1996, WFA withdrew from the partnership as the
general partner and assigned 1% of 7% interest to the new general partner, CHA
Properties, Inc. ("CHA"). WFA retained its remaining 6% interest which was
converted to a limited partnership interest but is not considered an investor
limited partner. Profits, losses and distributions of the partnership are
allocated 1% to the general partner, 6% to WFA and 93% to the investor limited
partners.
Basis of Presentation
The partnership prepares its financial statements on the accrual basis of
accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment in Real Estate
Investment in real estate is carried at cost. The Partnership depreciates
the property on the straight-line method over their estimated useful lives for
financial statement purposes. For income tax purposes, accelerated methods and
lives are used.
Amortization
Mortgage costs are amortized over the term of the mortgage loan using the
straight-line method.
Income Taxes
No provision has been made for federal, state or local income taxes in the
financial statements of the Partnership. The Partners are required to report on
their individual income tax returns their allocable share of income, gains,
losses, deductions and credits of the Partnership. The Partnership files its own
tax return on the accrual basis.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership and
tenants of the property are operating leases.
F-13
<PAGE> 1354
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
For the purpose of the statement of cash flows, the partnership considers
all highly liquid investments to be cash equivalents. The carrying amount in
1997 of $2,059,961 and in 1996 of $3,873,025 approximates fair value because of
the short maturity of this instrument.
NOTE B -- MORTGAGE COSTS
The following is a summary of mortgage costs at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1997 1996
------------- -------- --------
<S> <C> <C> <C>
Mortgage Loan Costs................................... 12/96 - 01/07 $666,400 $401,400
Less: Accumulated Amortization........................ 67,720 1,080
-------- --------
Unamortized Costs............................... $598,680 $400,320
======== ========
</TABLE>
NOTE C -- MORTGAGE PAYABLE
The Partnership obtained a mortgage note in the original amount of
$22,171,000, payable in equal monthly installments of principal and interest of
approximately $188,000 through July 1997. The loan bore a fixed interest rate of
9.85% per year.
On December 20, 1996, the Partnership refinanced the mortgage note with
Chase Manhattan Bank ("Mortgage Lender") in the aggregate amount of $26,500,000.
The new loan bears interest at a rate of 8.375%. Principal and interest are
payable by the Partnership in monthly installments of $201,419 commencing on
February 1, 1997 through January 1, 2007 with a balloon payment due of
approximately $23,460,471. Included in interest expense for the year ended
December 31, 1996 is $215,341 of a prepayment penalty paid to the previous
lender as a result of the refinancing mortgage note.
Principal payments due on the mortgage for the five years following
December 31, 1997 are:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------
<C> <S> <C>
1998.......................................................... $221,754
1999.......................................................... 241,055
2000.......................................................... 262,037
2001.......................................................... 284,845
2002.......................................................... 309,638
</TABLE>
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate plus other amounts deposited with the
lender.
The mortgage note is collateralized by the Property, the leases thereon,
management agreement and rental income.
F-14
<PAGE> 1355
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- TAXABLE LOSS
The Partnership's taxable loss for 1997 and 1996 differs from the net loss
for financial reporting purposes primarily due to differences in depreciation.
The taxable loan for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net loss for financial reporting purposes................... $(243,453) $(843,418)
Plus: Accelerated depreciation on real and personal
property.................................................. (8,574)
(7,876)
Other....................................................... 26,403 6,185
--------- ---------
Taxable loss................................................ $(225,624) $(845,109)
========= =========
</TABLE>
NOTE E -- MORTGAGE RESERVES HELD IN ESCROW
The Partnership has set up various reserve escrows with the Mortgage Lender
in connection with the Mortgage Note.
The replacement reserve in the amount of $610,941 and $169,999 at December
31, 1997 and 1996, respectively, secures the Partnership's agreement to
undertake certain improvements to the Property over the life of the mortgage
loan. The amount of this reserve will be reduced as improvements are completed.
An escrow for taxes and insurance has been set up under the Mortgage Note
Agreement. All taxes and insurance will be paid by the Mortgage Lender out of
these escrow accounts. The amounts held in escrow for insurance and taxes at
December 31, 1997 and 1996, is $778,806 and $814,812, respectively.
In addition, the Partnership was required to enter into a Completion/Repair
and Security agreement as part of the mortgage note agreement. The Partnership
was required to make an initial deposit of $358,573. The deposit represents 125
percent of the estimated costs to complete the "Repairs" as defined in the
agreement. The partnership completed all repairs by June 20, 1997. The balance
at December 31, 1997 is $189,958.
The Mortgage Lender has the right to draw upon these escrows in the event
that the Partnership defaults in the performance of its obligations under the
mortgage note, including its obligations to pay principal and interest. The
replacement reserve shall be invested in interest bearing instruments.
NOTE F -- RELATED PARTY TRANSACTIONS
The Partnership has incurred charges by and commitments to companies
affiliated by common ownership and management with CHA and WFA. Related party
transactions with WFA and its affiliates include the following:
General and administrative expenses include $89,657 end $119,543 in 1997
and 1996, respectively, representing investor service fees as well as $157,141
and $177,724 in 1997 and 1996, respectively, representing consulting management
fees equal to 2.5% of gross collections. Both fees were paid to affiliates of
CHA and WFA.
An affiliate of CHA and WFA was the on-site management agent of the
property. Management fees include $223,917 and $248,814 in 1997 and 1996,
respectively, representing a property management fee equal to 3.5% of gross
collections paid to the affiliate.
On October 28, 1997, the Partnership terminated Winthrop Management as the
managing agent and appointed an affiliate of Insignia Financial Group
("Insignia") to assume the management of the property. (See note I to the
financial statements). Management fees of $77,384, representing a property
management fee equal to 5% of gross collections was charged to operations in
1997. Unpaid fees totaled $69,226 at December 31, 1997 and is included in
accrued expenses.
F-15
<PAGE> 1356
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
General and administrative expenses include $21,120 of asset management
fees and $9,414 of general partner fees reimbursements charged to operations in
1997. These fees are payable to an affiliate of the general partner.
In connection with the refinancing of the mortgage note on December 20,
1996, the Partnership paid an affiliate of general partner a refinancing fee of
$198,750.
NOTE G -- CONCENTRATION OF CREDIT RISK
At December 31, 1997, the Partnership has cash in the amount of $1,579,705
held by the Mortgage Lender. The tax and insurance account is insured by the
Federal Deposit Insurance Corporation. The uninsured portion of this balance at
December 31, 1997 is $700,899. At December 31, 1997, the Partnership had bank
deposits in excess of federally-insured limits by $398,372.
NOTE H -- TENDER OFFER OF LIMITED PARTNERSHIP INTEREST
On November 4, 1996, Lon-Chestnut Hill Associates L.L.C., a Delaware
limited partnership, an affiliate of Winthrop Financial Associates, A Limited
Partnership ("WFA"), the original general partner of the Partnership, offered to
purchase up to 119 units of limited partnership interest in the Partnership for
cash consideration of $20,000 per unit (the "Offer"). The Offer was originally
scheduled to expire on December 6, 1996. The expiration date of the Offer was
extended to December 13, 1996 at which time approximately 119 units of limited
partnership interest in the Partnership had been tendered pursuant to the Offer.
NOTE I -- OTHER INFORMATION
On October 28, 1997, Insignia Financial Group ("Insignia") acquired 100% of
the Class B stock of First Winthrop Corporate ("FWC") an affiliate of WFA and
CHA. In connection with this acquisition, a nominee of Insignia was elected as a
director of FWC and has been appointed to the residential committee of the board
of directors of FWC.
NOTE J -- COMMITMENTS
Lead Based Paint Agreement
In connection with the refinancing of the mortgage note in 1996, the
Partnership was required to perform an environmental assessment of the Property.
It was determined through sampling and analysis that part of the Property may
contain "Lead Based Paint". As a condition to the making of the mortgage note,
the Partnership is required to develop, implement and carry out an operations
and maintenance plan for "Lead Based Paint" on the Property ("O & M Plan"). The
"O & M Plan" requires that in event the Partnership desires to make renovations
to or demolish the Property or any portion, thereof, the Partnership is required
to have all painted surfaces (including all underlying paint layers) at the
Property that are being renovated or demolished tested for the presence of Lead
Based Paint by a qualified environmental consultant. If such tests indicate the
presence of Lead Based Paint at the Property, the Partnership is required at
their expense, to remove all Lead Based Paint in accordance with all applicable
local, state and federal laws.
Asbestos Operations and Maintenance Agreement
As a condition of making the loan, the Partnership has agreed to develop an
operations and maintenance program for the Property with respect to the presence
of asbestos (the "O & M Program"). The Operations and Maintenance Program has
been established to minimize potential exposures to asbestos fibers from
asbestos containing materials ("ACM") present in the property. The program has
been designed to reduce the possibility of disturbing ACM during maintenance,
repair and renovation activities.
F-16
<PAGE> 1357
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
F-17
<PAGE> 1358
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-19
Financial Statements
Balance Sheets............................................ F-20
Statements of Operations.................................. F-21
Statements of Partners' Equity............................ F-22
Statements of Cash Flows.................................. F-23
Notes to Financial Statements............................. F-24
</TABLE>
F-18
<PAGE> 1359
INDEPENDENT AUDITORS' REPORT
To the Partners
Chestnut Hill Associates Limited Partnership
We have audited the accompanying balance sheets of Chestnut Hill Associates
Limited Partnership, a Delaware limited partnership, as of December 31, 1996 and
1995, and the related statements of operations, partners' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chestnut Hill Associates
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ REZNICK FEDDERS & SILVERMAN
Bethesda, Maryland
February 7, 1997
F-19
<PAGE> 1360
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Investment in real estate
Land...................................................... $ 4,740,951 $ 4,740,951
Building and improvements................................. 30,255,690 29,669,636
Personal property......................................... 2,989,290 2,446,052
----------- -----------
37,985,931 36,856,639
Less accumulated depreciation.......................... 13,943,540 12,535,819
----------- -----------
24,042,391 24,320,820
----------- -----------
Cash and cash equivalents................................. 4,164,609 541,495
Tenant security deposits -- funded........................ 456,918 420,376
Mortgage reserves held in escrow.......................... 1,343,384 1,302,726
Deferred financing costs, net of accumulated amortization
of $1,080 and $358,119................................. 400,320 115,134
Other assets.............................................. 347,748 139,578
----------- -----------
6,712,979 2,519,309
----------- -----------
$30,755,370 $26,840,129
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities applicable to investment in real property
Mortgage payable.......................................... $26,500,000 $21,662,694
Other liabilities
Tenants' security deposits................................ 455,681 411,375
Accounts payable.......................................... 64,238 122,006
Accrued interest payable.................................. -- 179,639
Accrued expenses.......................................... 204,766 90,312
----------- -----------
Total Liabilities...................................... 27,224,685 22,466,026
Commitments................................................. -- --
Partners' equity............................................ 3,530,685 4,374,103
----------- -----------
Total liabilities and partner's equity............ $30,755,370 $26,840,129
=========== ===========
</TABLE>
See notes to financial statements
F-20
<PAGE> 1361
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue
Rental income............................................. $6,716,768 $6,487,969
Interest income........................................... 41,762 37,839
Other income.............................................. 524,302 564,147
---------- ----------
7,282,832 7,089,955
---------- ----------
Operating expenses
Leasing................................................... 241,088 194,855
General and Administrative................................ 154,954 196,106
Management Fees........................................... 248,814 243,532
Utilities................................................. 1,208,381 1,071,729
Repairs and Maintenance................................... 894,114 889,750
Insurance................................................. 244,869 241,026
Taxes..................................................... 796,525 804,489
---------- ----------
3,788,745 3,641,487
---------- ----------
Other expenses
Depreciation.............................................. 1,407,721 1,302,724
Amortization.............................................. 64,045 62,965
Interest expense.......................................... 2,361,533 2,140,089
Other expenses............................................ 504,206 359,671
---------- ----------
4,337,505 3,865,449
---------- ----------
Total expenses.............................................. 8,126,250 7,506,936
---------- ----------
Net loss.................................................... $ (843,418) $ (416,981)
========== ==========
Net loss allocated to CHA Properties, Inc .................. $ (370) $ --
========== ==========
Net loss allocated to Investor Limited Partners............. $ (784,379) $ (387,792)
========== ==========
Net loss allocated to WFA................................... $ (58,669) $ (29,189)
========== ==========
Net loss per unit outstanding -- Investor Limited
Partners.................................................. $ (3,138) $ (1,551)
========== ==========
Weighted average number of outstanding...................... $ 250 $ 250
========== ==========
</TABLE>
See notes to financial statements
F-21
<PAGE> 1362
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
WINTHROP INVESTOR
FINANCIAL LIMITED CHA
ASSOCIATES PARTNERS PROPERTIES, INC. TOTAL
---------- -------- ---------------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1994............. $(1,620,765) $6,411,849 $ -- $4,791,084
Net loss............................... (29,189) (387,792) -- (416,981)
----------- ---------- ---------------- ----------
Balance, December 31, 1995............. (1,649,954) 6,024,057 -- 4,374,103
Transfer of interest................... 227,552 -- (227,552) --
Net loss............................... (58,669) (784,379) (370) (843,418)
----------- ---------- ---------------- ----------
Balance, December 31, 1996............. $(1,481,071) $5,239,678 $ (227,922) $3,530,685
=========== ========== ================ ==========
</TABLE>
See notes to financial statements
F-22
<PAGE> 1363
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (843,418) $ (416,981)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization.......................... 1,471,766 1,365,689
(Increase) decrease in mortgage reserves held in
escrow................................................ (167,588) 23,953
Increase in other assets............................... (208,170) (18,343)
Decrease in accounts payable........................... (57,768) (69,043)
(Decrease) Increase in accrued expenses................ 114,454 (89,813)
Net security deposits received (paid).................. 7,764 (3,766)
Decrease in accrued interest payable................... (179,639) --
------------ ----------
Net cash provided by operating activities............ 137,401 791,696
------------ ----------
Cash flows from investing activities
Payments for improvements to property..................... (1,129,292) (549,609)
Deposits to reserve for replacements...................... 1,063,400 (186,024)
Withdrawals from reserve for replacements................. (936,470) 353,351
------------ ----------
Net cash used in investing activities................ (1,002,362) (382,282)
------------ ----------
Cash flows from financing activities
Payments on mortgage...................................... (21,662,694) --
Proceeds from mortgage loan............................... 26,500,000 (116,592)
Increase in deferred financing costs...................... (349,231) --
------------ ----------
Net cash provided by (used in) financing
activities.......................................... 4,488,075 (116,592)
------------ ----------
Net increase in cash and cash equivalents................... 3,623,114 292,822
Cash and cash equivalents, beginning........................ 541,495 248,673
------------ ----------
Cash and cash equivalents, end.............................. $ 4,164,609 $ 541,495
============ ==========
Supplemental disclosure of cash flow information
Cash paid during the year for interest.................... $ 2,541,172 $2,140,089
============ ==========
</TABLE>
See notes to financial statements
F-23
<PAGE> 1364
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Chestnut Hill Associates Limited Partnership, a Delaware limited
partnership, was formed in July 1986 to acquire, renovate and operate an
apartment complex known as Chestnut Hill (the "Property"). The Property consists
of an 830-unit garden apartment and townhouse development located on 31.2 acres
of land in Philadelphia, Pennsylvania. The Partnership will terminate on
December 31, 2036, or earlier upon the occurrence of certain events specified in
the Partnership Agreement. The general partner of the Partnership was Winthrop
Financial Associates, a Limited Partnership, a Maryland Limited Partnership
("WFA"). The initial limited partners of the Partnership were Three Winthrop
Properties, Inc. and WFA.
Profits and losses from normal operations were allocated 7% to WFA and 93%
to the Investor Limited Partners. Cash flow from operations were allocated 3% to
WFA and 97% to the Investor Limited Partners.
Effective December 16, 1996, WFA withdrew from the partnership as the
general partner and assigned 1% of 7% interest to the new general partner, CHA
Properties Inc. ("CHA"). WFA retained its remaining 6% interest which was
converted to a limited partnership interest but is not considered an investor
limited partner. Profits, losses and distributions of the partnership are
allocated 1% to the general partner, 6% to WFA and 93% to the investor limited
partners.
Basis of Presentation
The Partnership prepares its financial statements on the accrual basis of
accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment in Real Estate
Investment in real estate is carried at cost. The Partnership depreciates
the property on the straight-line method over their estimated useful lives for
financial statement purposes. For income tax purposes, accelerated methods and
lives are used.
Deferred Costs
Deferred costs are capitalized and amortized on the straight-line method
over the term of the related agreements as discussed in note B.
Income Taxes
No provision has been made for federal, state or local income taxes in the
financial statements of the Partnership. The Partners are required to report on
their individual income tax returns their allocable share of income, gains,
losses, deductions and credits of the Partnership. The Partnership files its own
tax return on the accrual basis.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership and
tenants of the property are operating leases.
F-24
<PAGE> 1365
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
For the purpose of the statement of cash flows, the partnership considers
all highly liquid investments to be cash equivalents. The carrying amount in
1996 of $3,873,025 and in 1995 of $431,651 approximates fair value because of
the short maturity of this instrument.
The following is a summary of deferred costs at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Acquisition Costs............................. 10/86 - 10/05 $ -- $ 50,000
Mortgage Refinancing Costs.................... 07/90 - 07/97 -- 423,253
Mortgage Loan Costs........................... 12/96 - 01/07 401,400 --
-------- --------
401,400 473,253
Less: Accumulated Amortization................ 1,080 358,119
-------- --------
Unamortized Costs....................... $400,320 $115,134
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTE PAYABLE
The Partnership obtained a mortgage note in the original amount of
$22,171,000, payable in equal monthly installments of principal and interest of
approximately $188,000 through July 1997. The loan bore a fixed interest rate of
9.85% per year.
On December 20, 1996, the Partnership refinanced the mortgage note with
Chase Manhattan Bank ("Mortgage Lender") in the aggregate amount of $26,500,000.
The new loan bears interest at a rate of 8.375%. Principal and interest are
payable by the Partnership in monthly installments of $201,419 commencing on
February 1, 1997 through January 1, 2007 with a balloon payment due of
$23,460,471. Included in interest expense for the year ended December 31, 1996
is $215,341 of a prepayment penalty paid to the previous lender as a result of
the refinancing mortgage note.
Principal payments due on the mortgage for the five years following
December 31, 1996 are:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------
<S> <C>
1997...................................................... $187,640
1998...................................................... 221,754
1999...................................................... 241,055
2000...................................................... 262,037
2001...................................................... 282,845
</TABLE>
The liability of the Partnership under the mortgage limited to the
underlying value of the real estate plus other amounts deposited with the
lender.
The mortgage note is collateralized by the Property, the leases thereon,
management agreement and rental income.
F-25
<PAGE> 1366
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- TAXABLE LOSS
The Partnership's taxable loss for 1996 and 1995 differs from the net loss
for financial reporting purposes primarily due to differences in depreciation.
The taxable losses for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net loss for financial reporting purposes................... $(843,418) $(416,981)
Plus: Accelerated depreciation on real and personal
property.............................................. (7,876) (27,658)
Other....................................................... 6,185 4,013
--------- ---------
Taxable loss................................................ $(845,109) $(440,626)
========= =========
</TABLE>
NOTE E -- MORTGAGE RESERVES HELD IN ESCROW
The Partnership has set up various reserve escrows with the Mortgage Lender
in connection with the Mortgage Note.
The replacement reserve in the amount of $169,999 and $655,502 at December
31, 1996 and 1995, respectively, secures the Partnership's agreement to
undertake certain improvements to the Property over the life of the mortgage
loan. The amount of this reserve will be reduced as improvements are completed.
An escrow for taxes and insurance has been set up under the Mortgage Note
Agreement. All taxes and insurance will be paid by the Mortgage Lender out of
these escrow accounts. The amounts held in escrow for insurance and taxes at
December 31, 1996 and 1995, is $814,812 and $647,224, respectively.
In addition, the Partnership was required to enter into a Completion/Repair
and Security agreement as part of the mortgage note agreement. The Partnership
was required to make an initial deposit of $358,573. The deposit represents 125
percent of the estimated costs to complete the "Repairs" as defined in the
agreement. The partnership is required to complete all repairs by June 20, 1997.
The balance at December 31, 1996 is $358,573.
The Mortgage Lender has the right to draw upon these escrows in the event
that the Partnership defaults in the performance of its obligations under the
mortgage note, including its obligations to pay principal and interest. The
replacement reserve shall be invested in interest bearing instruments. Interest
earned during 1996 and 1995 amounted to $19,515 and $20,024, respectively.
NOTE F -- RELATED PARTY TRANSACTIONS
The Partnership has incurred charges by and commitments to companies
affiliated by common ownership and management with CHA and WFA. Related party
transactions with WFA and its affiliates include the following:
Administrative and rental expenses includes $119,543 and $121,032 in 1996
and 1995, respectively, representing investor service fees as well as $177,724
and $176,430 in 1996 and 1995, respectively, representing consulting management
fees equal to 2.5% of gross collections. Both fees are paid to affiliates of CHA
and WFA.
An affiliate of CHA and WFA is the on-site management agent of the
property. Administrative and rental expenses includes $248,814 and $243,532 in
1996 and 1995, respectively, representing a property management fee, equal to
3.5% of gross collections, paid to the affiliate.
In connection with the refinancing of the mortgage note on December 20,
1996, the Partnership paid an affiliate of the general partner a refinancing fee
of $198,750.
F-26
<PAGE> 1367
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- CONCENTRATION OF CREDIT RISK
At December 31, 1996, the Partnership has cash in the amount of $1,343,384
held by the Mortgage Lender. The tax and insurance account is insured by the
Federal Deposit Insurance Corporation up to $100,000 an account. The uninsured
portion of this balance at December 31, 1996 is $258,573. At December 31, 1996,
the Partnership had bank deposits in excess of federally-insured limits by
$15,806.
NOTE H -- TENDER OFFER OF LIMITED PARTNERSHIP INTEREST
On November 4, 1996, Lon-Chestnut Hill Associates L.L.C., a Delaware
limited partnership, an affiliate of Winthrop Financial Associates, A Limited
Partnership ("WFA"), the original general partner of the Partnership, offered to
purchase up to 119 units of limited partnership interest in the Partnership for
cash consideration of $20,000 per unit (the "Offer"). The Offer was originally
scheduled to expire on December 6, 1996. The expiration date of the Offer was
extended to December 13, 1996 at which time approximately 119 units of limited
partnership interest in the Partnership had been tendered pursuant to the Offer.
NOTE I -- COMMITMENTS
Lead Based Paint Agreement
In connection with the refinancing of the mortgage note, the Partnership
was required to perform an environmental assessment of the Property. It was
determined through sampling and analysis that part of the Property may contain
"Lead Based Paint". As a condition to the making of the mortgage note, the
Partnership is required to develop, implement and carry out an operations and
maintenance plan for "Lead Based Paint" on the Property ("O & M Plan"). The "O &
M Plan" requires that in event the Partnership desires to make renovations to or
demolish the Property or any portion, thereof, the Partnership is required to
have all painted surfaces (including all underlying paint layers) at the
Property that are being renovated or demolished tested for the presence of Lead
Based Paint by a qualified environmental consultant. If such tests indicate the
presence of Lead Based Paint at the Property, the Partnership is required at
their expense, to remove all Lead Based Paint in accordance with all applicable
local, state and federal laws.
Asbestos Operations and Maintenance Agreement
As a condition of making the loan, the Partnership has agreed to develop an
operations and maintenance program for the Property with respect to the presence
of asbestos (the "O & M Program"). The Operations and Maintenance Program has
been established to minimize potential exposures to asbestos fibers from
asbestos containing material ("ACM") present in the property. The program has
been designed to reduce the possibility of disturbing ACM during maintenance,
repair and renovation activities.
F-27
<PAGE> 1368
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1369
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1370
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1371
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
COASTAL COMMONS LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1372
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Comparison of Tax-Deferral % Preferred OP
Units and Class I Preferred Stock.......... S-16
Certain Federal Income Tax Matters........... S-16
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-18
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Coastal
Commons Limited Partnership................ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-30
Background of the Offer...................... S-30
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
THE OFFER...................................... S-33
Terms of the Offer; Expiration Date.......... S-33
Acceptance for Payment and Payment for
Units...................................... S-33
Procedure for Tendering Units................ S-34
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-37
Proration.................................... S-38
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-39
Dissenters' Rights........................... S-39
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment......................... S-42
DESCRIPTION OF PREFERRED OP UNITS.............. S-43
General...................................... S-43
Ranking...................................... S-43
Distributions................................ S-43
Allocation................................... S-44
Liquidation Preference....................... S-44
Redemption................................... S-45
Voting Rights................................ S-45
Restrictions on Transfer..................... S-45
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-48
CERTAIN FEDERAL INCOME TAX MATTERS............. S-51
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-51
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-51
Tax Consequences of Exchanging Units Solely
for Cash................................... S-52
Adjusted Tax Basis........................... S-52
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-53
Passive Activity Losses...................... S-53
Foreign Offerees............................. S-54
Certain Tax Consequences to Non-Tendering and
Partially-Tendering Unitholders............ S-54
VALUATION OF UNITS............................. S-55
FAIRNESS OF THE OFFER.......................... S-56
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-56
Fairness to Unitholders who Tender their
Units...................................... S-57
Fairness to Unitholders who do not Tender
their Units................................ S-58
Comparison of Consideration to Alternative
Consideration.............................. S-58
Allocation of Consideration.................. S-59
STANGER ANALYSIS............................... S-59
Experience of Stanger........................ S-60
Summary of Materials Considered.............. S-60
Summary of Reviews........................... S-61
Conclusions.................................. S-61
Assumptions, Limitations and
Qualifications............................. S-61
Compensation and Material Relationships...... S-62
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-64
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-69
CONFLICTS OF INTEREST.......................... S-73
Conflicts of Interest with Respect to the
Offer...................................... S-73
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-73
Competition Among Properties................. S-73
Features Discouraging Potential Takeovers.... S-73
</TABLE>
i
<PAGE> 1373
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Future Exchange Offers....................... S-73
YOUR PARTNERSHIP............................... S-74
General...................................... S-74
Your Partnership and its Property............ S-74
Property Management.......................... S-74
Investment Objectives and Policies; Sale or
Financing of Investments................... S-74
Capital Replacement.......................... S-75
Borrowing Policies........................... S-75
Competition.................................. S-75
Legal Proceedings............................ S-75
Selected Financial Information............... S-75
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-77
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-79
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-79
Beneficial Ownership of Interests in Your
Partnership................................ S-80
Compensation Paid to the General Partner and
its Affiliates............................. S-80
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-81
LEGAL MATTERS.................................. S-81
EXPERTS........................................ S-81
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1374
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Coastal Commons Limited Partnership. For each unit that you tender, you may
choose to receive of our Tax-Deferral % Partnership
Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred to as "Common
OP Units"), or $ in cash (subject, in each case to adjustment for
any distributions paid to you during the offer period). If you like, you
can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1375
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)............................... $ $ $ -- $ --
Third Quarter.......................... 41 30 15/16 -- --
Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter......................... 38 32 0.5625 0.5625
Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter......................... 29 3/4 26 0.4625 0.4625
First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter.......................... 22 18 3/8 0.4250 0.4250
Second Quarter......................... 21 18 3/8 0.4250 0.4250
First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 1376
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $1,113.75 per unit for the six
months ended June 30, 1998 (equivalent to $2,227.50 on an annual basis). We
will pay fixed quarterly distributions of $ per unit on the
Tax-Deferral % Preferred OP Units before any distributions are paid to
holders of Tax-Deferral Common OP Units. We pay quarterly distributions on
the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the six months ended June 30, 1998, we paid distributions
of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25
on an annual basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units or
distributions of $ per year on the number of Tax-Deferral Common
OP Units that you would receive in an exchange for each of your
partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
S-3
<PAGE> 1377
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of
units without the consent of the general partner. Such consent may be
withheld by the general partner in its sole discretion. The general partner
may withhold its consent if such transfer would result in the termination
of your partnership for tax purposes which will occur if 50% or more of the
total interests in your partnership are transferred within a 12-month
period. If we acquire a significant percentage of the interest in your
partnership, the general partner may not consent to a transfer for a
12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership. In addition, there is a sale or exchange of 50% or more of the
total interest in capital and profits of your partnership within any
12-month period, including sales or exchanges resulting from the offer,
your partnership will terminate for Federal income tax purposes. Any such
termination may, among other things, subject the assets of your partnership
to longer depreciable lives than those currently applicable to the assets
of your partnership. This would generally decrease the annual average
depreciation deductions allocable to you if you do not tender all of your
units (thereby increasing the taxable income allocable to your units each
year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF
YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX
SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
OFFER.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your
S-4
<PAGE> 1378
partnership using the direct capitalization method. This method involves
applying a capitalization rate to your partnership's annual net operating
income. We determined an appropriate capitalization rate using our best
judgment, but our valuation is just an estimate. Although the direct
capitalization method is a widely-accepted way of valuing real estate,
there are a number of other methods available to value real estate, each of
which may result in different valuations of the property. The proceeds that
you would receive if you sold your units to someone else or if your
partnership were actually liquidated might be higher or lower than our
offer consideration. An actual liquidation may also result in your paying
taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
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Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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<PAGE> 1380
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code.
The particular tax consequences to you of the exchange will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership, and whether the "passive loss" rules apply to your investments.
Because the income tax consequences of an exchange of units will not be the same
for everyone, you should consult your tax advisor before determining whether to
tender your units pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
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<PAGE> 1382
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if more than 50% or more of the total interests in
your partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
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<PAGE> 1383
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
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<PAGE> 1384
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain
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<PAGE> 1385
pension trusts, registered investment companies and Mr. Considine). Our charter
also prohibits anyone from buying shares if the purchase would result in us
losing our REIT status. If you or anyone else acquires shares in excess of the
ownership limit or in violation of the ownership requirements of the Internal
Revenue Code for REITs, the transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the
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continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. We believe
it is possible that the private resale market for apartment and retail
properties could improve over time, making a sale of your partnership's
property in a private transaction at some point in the future a more viable
option than it is currently. However, there are several risks and
disadvantages that result from continuing the operations of your
partnership without the offer. Your partnership faces maturity or balloon
payment dates on its mortgage loans and must either obtain refinancing or
sell its property. If your partnership were to continue operating as
presently structured, it could be forced to borrow on terms that could
result in net losses from operations. In addition, continuation of your
partnership without the offer would deny you and your partners the benefits
that your general partner expects to result from the offer. For example, a
partner of your partnership would have no opportunity for liquidity unless
he were to sell his units in a private transaction. Any such sale would
likely be at a very substantial discount from the partner's pro rata share
of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future
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increase in the AIMCO stock price and from any future increase in
distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
S-14
<PAGE> 1388
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
S-15
<PAGE> 1389
COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
There are a number of significant differences between Tax-Deferral %
Preferred OP Units and Class I Preferred Stock relating to, among other things,
the nature of the investment, voting rights, distributions, liquidity and
transfer and redemption rights. See "Comparison of Preferred OP Units and Class
I Preferred Stock" for a chart highlighting such differences.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
</TABLE>
S-16
<PAGE> 1390
<TABLE>
<S> <C>
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents 100% of the closing price of
AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced
this offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
S-17
<PAGE> 1391
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives 1/4 of
1% of gross operating revenues of your partnership's property, payable monthly,
and may receive reimbursement for expenses generated in its capacity as general
partner of your partnership. The property manager received management fees of
$82,000 in 1996, $87,000 in 1997 and $44,102 for the first six months of 1998.
We have no current intention of changing the fee structure for your property
manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine
S-18
<PAGE> 1392
precisely the confines of the market area for particular properties and some
competition may exist. Furthermore, you should bear in mind that we anticipate
acquiring properties in general market areas where your partnership's property
is located. It is believed that this concentration of properties in a general
market area will facilitate overall operations through collective advertising
efforts, staffing and other operational efficiencies. In managing our
properties, we will attempt to reduce such conflicts between competing
properties by referring prospective tenants to the property considered to be
most conveniently located for the tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Coastal Commons Limited Partnership is a
South Carolina limited partnership which was formed on June 29, 1984 for the
purpose of owning and operating a single apartment property located in Mt.
Pleasant, South Carolina, known as "Hibben Ferry Apartments". In 1984, it
completed a private placement of units that raised net proceeds of approximately
$15,300,000. Hibben Court Apartments consists of 240 apartment units. Your
partnership has no employees.
Property Management. Since December 1990, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2014, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $6,209,522, payable to First Union
National Bank, which bears interest at a rate of 8.08%. The mortgage debt is due
in July, 2002. Your partnership's agreement of limited partnership also allows
your general partner to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 1393
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 dated
which is incorporated by reference herein. All dollar values are in thousands,
except per unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1394
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1395
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to the AIMCO's merger with Insignia Financial Group,
Inc., the transfer of certain assets and liabilities of Insignia to
unconsolidated subsidiaries, a number of transactions completed before the
Insignia merger, and the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1396
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1397
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and pro forma cash distributions per Common
OP Unit and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING AIMCO OPERATING
PARTNERSHIP PARTNERSHIP YOUR PARTNERSHIP
HISTORICAL PRO FORMA HISTORICAL
------------------------- ------------------------- ---------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997 1998 1997
---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash distributions per unit
outstanding................... $1.125 $1.85 $1.125 $1.85 $0.00 $0.00
</TABLE>
S-24
<PAGE> 1398
SUMMARY FINANCIAL INFORMATION OF COASTAL COMMONS LIMITED PARTNERSHIP
The summary financial information of Coastal Commons Limited Partnership
for the six months ended June 30, 1998 and 1997 is unaudited. The summary
financial information for Coastal Commons Limited Partnership for the years
ended December 31, 1997, 1996 and 1995, is based on audited financial
statements. This information should be read in conjunction with such financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Your Partnership"
included herein. See "Index to Financial Statements."
COASTAL COMMONS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues.............. $ 851,122 $ 856,862 $ 1,780,000* $ 1,668,000 $ 1,539,954 $ 1,526,123 $ 1,638,858
Net Income/(Loss)........... 28,813 26,714 113,000* (219,000) (289,081) (331,825) (275,723)
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated
Depreciation.............. $ 2,045,497 $ 2,343,633 $ 2,197,000* $ 2,479,000 $ 2,769,008 $ 3,082,967 $ 3,436,637
Total Assets................ 4,487,013 4,690,717 4,666,000* 4,763,000 5,009,168 4,985,436 5,337,744
Mortgage Notes Payable,
including Accrued
Interest.................. 6,252,303 6,313,692 6,240,000* 6,342,000 6,396,453 6,068,240 6,142,868
Partners' Deficit........... $(1,896,164) $(1,775,312) $(1,689,000)* $(1,702,000) $(1,482,520) $(1,193,439) $ (861,614)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................ $ 1.125 $1.85 $1,113.75 $495
</TABLE>
- ---------------
* Information prepared on an Income Tax Basis.
S-25
<PAGE> 1399
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 1400
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units solely for
purchase. Accordingly, following the purchase of your units, we would be
entitled to receive any future distributions from the operations of your
partnership to the extent of the units we acquire. Similarly, if you tender your
units for OP Units, you will be entitled to future distributions from the
operations of the AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single
S-27
<PAGE> 1401
apartment property. In contrast, the AIMCO Operating Partnership is in the
business of acquiring, marketing, managing and operating a large portfolio of
apartment properties. While diversification of assets may reduce certain risks
of investment attributable to a single property or entity, there can be no
assurance as to the value or performance of our securities or our portfolio of
properties as compared to the value of your units or your partnership. Proceeds
of future asset sales or refinancings by the AIMCO Operating Partnership
generally will be reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or Common OP Units may be
redeemed for shares of Class I Preferred Stock or Class A Common Stock.
Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common
Stock at the time at which OP Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June 1998 were $1,113.75 per unit (equivalent to
$2,227.50 on an annualized basis). This is equivalent to distributions of
$ per year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common OP
Units, that you would receive in an exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations
S-28
<PAGE> 1402
may cause your general partner to reduce the liabilities of your partnership. If
the liabilities of your partnership were to be reduced, and you do not tender
all of your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES.
If there is a sale or exchange of 50% or more of the total interest in capital
and profits of your partnership within any 12-month period, including sales or
exchanges resulting from the offer, your partnership will terminate for Federal
income tax purposes. Any such termination may, among other things, subject the
assets of your partnership to longer depreciable lives than those currently
applicable to the assets of your partnership. This would generally decrease the
annual average depreciation deductions allocable to you if you do not tender all
of your units (thereby increasing the taxable income allocable to your units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
Your partnership's agreement of limited partnership prohibits any transfer
of units without the consent of the general partner. Such consent may be
withheld by the general partner in its sole discretion. The general partner may
withhold its consent if such transfer would result in the termination of your
partnership for tax purposes which will occur if more than 50% or more of the
total interests in your partnership are transferred within a 12-month period. If
we acquire a significant percentage of the interest in your partnership, the
general partner may not consent to a transfer for a 12-month period following
the offer.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO to
negative from stable to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same, Moody's confirmed its
existing rating on AIMCO's existing preferred stock and senior debt.
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BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction.
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<PAGE> 1404
Any such sale likely would be at a very substantial discount from your pro rata
share of the fair market value of your partnership's property and might involve
significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
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<PAGE> 1405
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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<PAGE> 1406
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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<PAGE> 1407
For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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<PAGE> 1408
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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<PAGE> 1409
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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<PAGE> 1410
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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<PAGE> 1411
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks
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or other lending institutions, or (viii) in the case of any of the
foregoing existing at the time of the commencement of the offer, in the
sole judgment of the AIMCO Operating Partnership, a material acceleration
or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains or prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 1420
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 1421
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 1422
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 1423
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 1424
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 1425
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 1426
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING UNITHOLDERS
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). It is possible that the AIMCO Operating Partnership's
acquisition of units pursuant to the offer could result in a Termination of your
partnership. If a purchase of units results in a Termination, the following
Federal income tax events will be deemed to occur with respect to such
Termination: the terminated Partnership (the "Old Partnership") will be deemed
to have contributed all of its assets (subject to its liabilities) (the
"Hypothetical Contribution") to a new partnership (the "New Partnership") in
exchange for an interest in the New Partnership and, immediately thereafter, the
Old Partnership will be deemed to have distributed interests in the New
Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership
and unitholders who do not tender all of their units (a "Remaining Unitholders")
in proportion to their respective interests in the Old Partnership in
liquidation of the Old Partnership.
A Remaining Unitholder will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Unitholders in the Old Partnership will carry over
intact into the New Partnership. Any Termination may change (and possibly
shorten) a Remaining Unitholder's holding period with respect to its units in
your partnership for Federal income tax purposes.
The New Partnership's adjusted tax basis in its assets will carry over from
the Old Partnership's basis in such assets immediately before the Termination.
Any Termination may also subject the assets of the New Partnership to
depreciable lives in excess of those currently applicable to the Old
Partnership. This would generally decrease the annual average depreciation
deductions allocable to the Remaining Unitholders following consummation of the
offer (thereby increasing the taxable income allocable to their retained units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership.
Section 704(c) of the Code will apply to future allocation of income, gain,
loss and deductions with respect to any New Partnership assets among the AIMCO
Operating Partnership and the Remaining Unitholders following the consummation
of the offer only to the extent that such assets were Section 704(c) property in
the hands of the Old Partnership immediately prior to the Hypothetical
Contribution. Moreover, subject to the Code's anti-abuse regulations, the New
Partnership will not be required to apply the same Section 704(c) allocation
method applied by the Old Partnership. The Hypothetical Contribution will not
trigger a new five-year holding period for purposes of measuring
post-contribution appreciation of assets for the unitholder who contributed such
assets.
Elections as to certain tax matters previously made by the Old Partnership
prior to Termination will not be applicable to the New Partnership unless the
New Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all unitholders. In the case of a Remaining Unitholder reporting on a
tax year other than a calendar year, the closing of your partnership's taxable
year may result in more than 12 months' taxable income or loss of the Old
Partnership being includible in such unitholder's taxable income for the year of
Termination.
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<PAGE> 1428
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership property................
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25, and distributions with respect to your units for
the six months ended June 1998 were 1,113.75 (equivalent to 2,227.50 on an
annualized basis. This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units, or
distributions of $ per year on the number of Tax-Deferral Common
OP Units that you would receive in exchange for each of your partnership's
units. Therefore, distributions with respect to the Preferred OP Units and
Common OP Units, that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to
your units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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<PAGE> 1432
apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
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<PAGE> 1433
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also
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<PAGE> 1434
performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information
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<PAGE> 1435
contained in this Prospectus Supplement or that were provided, made
available, or otherwise communicated to Stanger by your partnership, AIMCO, or
the management of the partnership's property. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of your partnership. Stanger relied upon the representations of
your partnership and AIMCO concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, the determination and valuation of non-real
estate assets and liabilities of your partnership, the allocation of your
partnership's net values between the general partner, special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities
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<PAGE> 1436
laws. No portion of Stanger's fee is contingent upon consummation of the
offer or the content of Stanger's opinion. Stanger has performed other services
for AIMCO in the past, including: general financial advisory services relating
to a potential acquisition by AIMCO. However, such acquisition was never
completed and no fee was paid to Stanger.
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<PAGE> 1437
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under South Carolina law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Hibben Ferry Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash From Operations (as defined in of the AIMCO Operating Partnership's agreement of
your partnership's agreement of limited partnership). limited partnership (the "AIMCO Operating Partnership
The termination date of your partnership is December Agreement") or as provided by law. See "Description of
31, 2014. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, operate, The purpose of the AIMCO Operating Partnership is to
lease and manage your partnership's property. Subject conduct any business that may be lawfully conducted by
to restrictions contained in your partnership's a limited partnership organized pursuant to the
agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as
perform all act necessary, advisable or convenient to amended from time to time, or any successor to such
the business of your partnership including borrowing statute) (the "Delaware Limited Partnership Act"),
money and creating liens. provided that such business is to be conducted in a
manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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<PAGE> 1438
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership authorized to The general partner is authorized to issue additional
issue additional limited partnership interests in your partnership interests in the AIMCO Operating
partnership and may admit additional limited partners Partnership for any partnership purpose from time to
by selling not more than 200 units for cash and notes time to the limited partners and to other persons, and
to selected persons who fulfill the requirements set to admit such other persons as additional limited
forth in your partnership's agreement of limited partners, on terms and conditions and for such capital
partnership. The capital contribution need not be equal contributions as may be established by the general
for all limited partners and no action or consent is partner in its sole discretion. The net capital
required in connection with the admission of any contribution need not be equal for all OP Unitholders.
additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute
partnership, the general partners may not enter into funds or other assets to its subsidiaries or other
contracts with themselves or their affiliates, except persons in which it has an equity investment, and such
for the agreement specified in your partnership's persons may borrow funds from the AIMCO Operating
agreement of limited partnership in connection with the Partnership, on terms and conditions established in the
acquisition, operation, management and ownership of sole and absolute discretion of the general partner. To
your partnership's property. Your partnership may not the extent consistent with the business purpose of the
make loans to any of the general partners but the AIMCO Operating Partnership and the permitted
general partners may make loans to your partnership in activities of the general partner, the AIMCO Operating
such amounts as the general partners deem necessary for Partnership may transfer assets to joint ventures,
the payment of any partnership obligations and limited liability companies, partnerships,
expenses; provided that the interest is 1% over the corporations, business trusts or other business
then prevailing prime rate of The Citizens and Southern entities in which it is or thereby becomes a
National Bank of South Carolina for short-term, participant upon such terms and subject to such
unsecured loans (but not in any case higher than the conditions consistent with the AIMCO Operating Part-
legal rate) and the general partners first make a nership Agreement and applicable law as the general
reasonable effort to obtain loans at the most favorable partner, in its sole and absolute discretion, believes
rate from unaffiliated parties. to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money in such amounts as the general partner restrictions on borrowings, and the general partner has
deems, in its reasonable discretion, to be in the best full power and authority to borrow money on behalf of
interests of your partnership, on the credit of and the AIMCO Operating Partnership. The AIMCO Operating
enter into obligations, recourse and nonrecourse, on Partnership has credit agreements that restrict, among
behalf of your partnership and to give as security other things, its ability to incur indebtedness. See
therefor any of your partnership's property. However, a "Risk Factors -- Risks of Significant Indebtedness" in
refinancing of your partnership's property must be the accompanying Prospectus.
approved by the general partner.
</TABLE>
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<PAGE> 1439
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles a limited partner or its duly authorized with a statement of the purpose of such demand and at
representative to receive by mail, upon written request such OP Unitholder's own expense, to obtain a current
to your partnership and at such limited partner's sole list of the name and last known business, residence or
cost and expense, a list of names and addresses of the mailing address of the general partner and each other
limited partners. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the All management powers over the business and affairs of
responsibility to direct the management of your the AIMCO Operating Partnership are vested in AIMCO-GP,
partnership's business and assets and has all rights Inc., which is the general partner. No OP Unitholder
and powers generally conferred by law or which are has any right to participate in or exercise control or
necessary, advisable or consistent in connection management power over the business and affairs of the
therewith. The general partner of your partnership has AIMCO Operating Partnership. The OP Unitholders have
the power and authority to execute documents and the right to vote on certain matters described under
instruments in its sole name on behalf of your "Comparison of Ownership of Your Units and AIMCO OP
partnership. No limited partner may take part in or Units -- Voting Rights" below. The general partner may
interfere in any manner with the conduct or control of not be removed by the OP Unitholders with or without
the business of your partnership. Limited partners have cause.
no right or authority to act for or bind the
corporation. In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general
and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating
or any limited partner for any acts performed or any Partnership for losses sustained, liabilities incurred
failure to act by any of them performed or omitted in or benefits not derived as a result of errors in
good faith, provided that such course of conduct did judgment or mistakes of fact or law of any act or
not constitute fraud, gross negligence or willful omission if the general partner acted in good faith.
misconduct. In addition, the general partner and its The AIMCO Operating Partnership Agreement provides for
affiliates are entitled to indemnification by your indemnification of AIMCO, or any director or officer of
partnership against any loss or damage resulting from AIMCO (in its capacity as the previous general partner
any act or omission performed or omitted in good faith, of the AIMCO Operating Partnership), the general
which does not constitute fraud, gross negligence or partner, any officer or director of general partner or
willful misconduct. Moreover, the general partner is the AIMCO Operating Partnership and such other persons
not liable to your partnership or the limited partners as the general partner may designate from and against
because any taxing authorities disallowed or adjusted all losses, claims, damages, liabilities, joint or
any deductions or credits in your partnership income several, expenses (including legal fees), fines,
tax returns. settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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<PAGE> 1440
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove the has exclusive management power over the business and
general partner and elect a successor general partner affairs of the AIMCO Operating Partnership. The general
upon a vote of the limited partners owning a majority partner may not be removed as general partner of the
of the outstanding units. The general partner may AIMCO Operating Partnership by the OP Unitholders with
resign at any time; provided, however that such or without cause. Under the AIMCO Operating Partnership
resignation does not cause the default under or result Agreement, the general partner may, in its sole
in the acceleration of the payment of any loan secured discretion, prevent a transferee of an OP Unit from
by your partnership's property. A limited partner may becoming a substituted limited partner pursuant to the
not transfer his interests without the consent of the AIMCO Operating Partnership Agreement. The general
general partner which may be withheld at the sole partner may exercise this right of approval to deter,
discretion of the general partner. delay or hamper attempts by persons to acquire a
controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to comply with in the AIMCO Operating Partnership Agreement, whereby
applicable laws, make changes of a ministerial nature the general partner may, without the consent of the OP
which do not materially and adversely affect the rights Unitholders, amend the AIMCO Operating Partnership
of the limited partners and admit substitute or Agreement, amendments to the AIMCO Operating
additional limited partners. Any other amendments must Partnership Agreement require the consent of the
be approved by the limited partners owning more than holders of a majority of the outstanding Common OP
50% of the units and the general partner. Limited Units, excluding AIMCO and certain other limited
partners owning at least 20% of the units have the exclusions (a "Majority in Interest"). Amendments to
power to propose amendments to your partnership's the AIMCO Operating Partnership Agreement may be
agreement of limited partnership. proposed by the general partner or by holders of a
Majority in Interest. Following such proposal, the
general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives 1/4 of 1% of gross operating revenues of your capacity as general partner of the AIMCO Operating
partnership's property, payable monthly. Moreover, the Partnership. In addition, the AIMCO Operating Part-
general partner or certain affiliates may be entitled nership is responsible for all expenses incurred
to compensation for additional services rendered. relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 1441
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, a limited partner, unless it is deemed to negligence, no OP Unitholder has personal liability for
be taking part in the control of the business, is not the AIMCO Operating Partnership's debts and
bound by or personally liable for the expenses, obligations, and liability of the OP Unitholders for
liabilities or obligations of your partnership. A the AIMCO Operating Partnership's debts and obligations
limited partner's liability is limited solely to the is generally limited to the amount of their invest-
amount of its capital contribution to your partnership, ment in the AIMCO Operating Partnership. However, the
together with the undistributed share of the profits of limitations on the liability of limited partners for
your partnership from time to time credited to its the obligations of a limited partnership have not been
capital account and any money or other property clearly established in some states. If it were
wrongfully paid or conveyed to him on account of his determined that the AIMCO Operating Partnership had
contribution. been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner has an overriding partnership agreement, Delaware law generally requires
fiduciary obligation to your partnership. The general a general partner of a Delaware limited partnership to
partner is not required to devote all of its time or adhere to fiduciary duty standards under which it owes
business efforts to the affairs of your partnership, its limited partners the highest duties of good faith,
but shall devote so much of its time and attention to fairness and loyalty and which generally prohibit such
your partnership as is necessary and advisable to general partner from taking any action or engaging in
successfully manage the affairs of your partnership. In any transaction as to which it has a conflict of
addition, any partner or affiliate may engage in or interest. The AIMCO Operating Partnership Agreement
possess an interest in other business ventures of every expressly authorizes the general partner to enter into,
nature and description, whether such ventures are on behalf of the AIMCO Operating Partnership, a right
competitive with your partnership or otherwise, which of first opportunity arrangement and other conflict
may be located in the market area or vicinity of your avoidance agreements with various affiliates of the
partnership's property and neither your partnership nor AIMCO Operating Partnership and the general partner, on
the partners shall have any right in or to such such terms as the general partner, in its sole and
independent ventures or to the income or profits absolute discretion, believes are advisable. The AIMCO
derived therefrom. Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 1442
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding units the holders of the Preferred OP respect to certain limited matters
and the approval of the general Units will have the same voting such as certain amendments and
partner, the limited partners may rights as holders of the Common OP termination of the AIMCO Operating
amend your partnership's agreement Units. See "Description of OP Partnership Agreement and certain
of limited partnership, terminate Units" in the accompanying transactions such as the
your partnership and approve or Prospectus. So long as any institution of bankruptcy
disapprove the sale of all or Preferred OP Units are outstand- proceedings, an assignment for the
substantially all of the assets of ing, in addition to any other vote benefit of creditors and certain
your partnership. The removal of or consent of partners required by transfers by the general partner of
the general partner and the law or by the AIMCO Operating its interest in the AIMCO Operating
election a trustee to Partnership Agree- Part-
</TABLE>
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<PAGE> 1443
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
liquidate and distribute your ment, the affirmative vote or nership or the admission of a
partnership's assets upon a consent of holders of at least 50% successor general partner.
dissolution caused by the of the outstanding Preferred OP
retirement of the general partner Units will be necessary for Under the AIMCO Operating Partner-
both require the vote of a majority effecting any amendment of any of ship Agreement, the general partner
of the outstanding units. The the provisions of the Partnership has the power to effect the
affirmative vote of all limited Unit Designation of the Preferred acquisition, sale, transfer,
partners and the approval of the OP Units that materially and exchange or other disposition of
general partner is required to adversely affects the rights or any assets of the AIMCO Operating
elect a substitute general partner. preferences of the holders of the Partnership (including, but not
Preferred OP Units. The creation or limited to, the exercise or grant
The general partner may cause the issuance of any class or series of of any conversion, option,
dissolution of the your partnership partnership units, including, privilege or subscription right or
by retiring. Your partnership may without limitation, any partner- any other right available in
be continued by the remaining ship units that may have rights connection with any assets at any
general partner or, if none, all of senior or superior to the Preferred time held by the AIMCO Operating
the limited partners may agree to OP Units, shall not be deemed to Partnership) or the merger,
continue your partnership and elect materially adversely affect the consolidation, reorganization or
a successor to the general partner. rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such
Operation as defined in your provided, however, that at any time portion as the general partner may
partnership's agreement of limited and from time to time on or after in its sole and absolute discretion
partnership are made not less often the fifth anniversary of the issue determine, of Available Cash (as
than semi-annually. The date of the Preferred OP Units, the defined in the AIMCO Operating
distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by
partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership
and depend upon the operating on the Preferred OP Units to the during such quarter to the general
results and net sales or lower of (i) % plus the annual partner, the special limited
refinancing proceeds available from interest rate then applicable to partner and the holders of Common
the disposition of your U.S. Treasury notes with a maturity OP Units on the record date
partnership's assets. Your of five years, and (ii) the annual established by the general partner
partnership has made distri- dividend rate on the most recently with respect to such quarter, in
butions in the past and is issued AIMCO non-convertible accordance with their respective
projected to make distributions in preferred stock which ranks on a interests in the AIMCO Operating
1998. parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
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<PAGE> 1444
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part-
substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the
such person if: (1) the transfer on any securities exchange. The transferability of the OP Units.
complies with the then-applicable Preferred OP Units are subject to Until the expiration of one year
rules and regulations of any restrictions on transfer as set from the date on which an OP
governmental authority with forth in the AIMCO Operating Unitholder acquired OP Units,
jurisdiction over the disposi- Partnership Agreement. subject to certain exceptions, such
tion, (2) except in specified OP Unitholder may not transfer all
circumstances, the interest Pursuant to the AIMCO Operating or any portion of its OP Units to
transferred is not less than 1 Partnership Agreement, until the any transferee without the consent
unit, (3) a written assignment has expiration of one year from the of the general partner, which
been duly executed and ac- date on which a holder of Preferred consent may be withheld in its sole
knowledged by the assignor and OP Units acquired Preferred OP and absolute discretion. After the
assignee, (4) the approval of the Units, subject to certain expiration of one year, such OP
general partner which may be exceptions, such holder of Unitholder has the right to
withheld in the sole and absolute Preferred OP Units may not transfer transfer all or any portion of its
discretion of the general partner all or any portion of its Pre- OP Units to any person, subject to
has been granted and (5) the ferred OP Units to any transferee the satisfaction of certain
assignor and assignee have complied without the consent of the general conditions specified in the AIMCO
with such other conditions as set partner, which consent may be Operating Partnership Agreement,
forth in your partnership's withheld in its sole and absolute including the general partner's
agreement of limited partnership. discretion. After the expiration of right of first refusal. See
one year, such holders of Preferred "Description of OP Units --
There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the
associated with your units. all or any portion of its Preferred accompanying Prospectus.
OP Units to any person, subject to
the satisfaction of
</TABLE>
S-71
<PAGE> 1445
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
certain conditions specified in the After the first anniversary of
AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-72
<PAGE> 1446
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives 1/4 of
1% of gross operating revenues of your partnership's property, payable monthly,
and may receive reimbursement for expenses generated in its capacity as general
partner from your partnership. The property manager received management fees of
$82,000 in 1996, $87,000 in 1997 and $44,102 for the first six months of 1998.
The AIMCO Operating Partnership has no current intention of changing the fee
structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-73
<PAGE> 1447
YOUR PARTNERSHIP
GENERAL
Coastal Commons Limited Partnership is a South Carolina limited partnership
which raised net proceeds of approximately $15,300,000 in 1984 through a private
offering. The promoter for the private offering of your partnership was US
Shelter Corporation. Insignia acquired your partnership in December 1990. AIMCO
acquired Insignia in October, 1998. There are currently a total of 229 limited
partners of your partnership and a total of 200 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the single
apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on June 29, 1984 for the purpose of owning and
operating a single apartment property located in Mt. Pleasant, South Carolina,
known as "Hibben Ferry Apartments." Your partnership's property consists of 240
apartment units. There are 48 one-bedroom apartments and 192 two-bedroom
apartments. The total rentable square footage of your partnership's property is
234,480 square feet. Your partnership's property had an average occupancy rate
of approximately 92.92% in 1996 and 92.92% in 1997. The average annual rent per
apartment unit is approximately $6,844.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1990, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $82,000, $87,000 and $44,102, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2014
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-74
<PAGE> 1448
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $6,209,522, payable to First Union National Bank, which bears
interest at a rate of 8.08%. The mortgage debt is due in July, 2002. Your
partnership's agreement of limited partnership also allows the general partner
of your partnership to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-75
<PAGE> 1449
Below is selected financial information for Coastal Commons Limited
Partnership taken from the financial statements described above. See "Index to
Financial Statements."
<TABLE>
<CAPTION>
COASTAL COMMONS LIMITED PARTNERSHIP
------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(1) (1) (1) (1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents..... $ 404,974 $ 363,729 $ 452,000* $ 346,000 $ 220,858 $ 188,456 $ 278,430
Land & Building............... 9,262,464 9,215,206 9,241,000* 9,178,000 9,115,731 9,024,868 8,983,185
Accumulated Depreciation...... (7,216,967) (6,871,573) (7,084,000)* (6,699,000) (6,346,723) (5,941,901) (5,546,548)
Other Assets.................. 2,036,542 1,983,355 9,000* 1,938,000 2,019,302 1,714,013 1,622,677
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets......... $ 4,487,014 $ 4,690,717 $ 4,666,000* $ 4,763,000 $ 5,009,168 $ 4,985,436 $ 5,337,744
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued Interest... 6,252,303 6,313,692 6,240,000* 6,342,000 6,396,453 6,068,240 6,142,868
Other Liabilities............. 130,874 152,337 52,000* 123,000 95,235 110,635 152,490
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities.... $ 6,383,177 $ 6,466,029 $ 6,355,000* $ 6,465,000 $ 6,491,688 $ 6,178,875 $ 6,295,358
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Deficit.............. $(1,896,164) $(1,775,312) $(1,689,000)* $(1,702,000) $(1,482,520) $(1,193,439) $ (861,614)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
COASTAL COMMONS LIMITED PARTNERSHIP
-------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- ----------
(1) (1) (1) (1) (1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue....................... $799,638 $794,057 $1,665,000* $1,520,000 $1,438,405 $1,461,849 $1,492,961
Other Income......................... 51,484 62,805 115,000* 148,000 101,549 64,274 145,897
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Revenue............... $851,122 $856,862 1,780,000* $1,668,000 $1,539,954 $1,526,123 $1,638,858
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Expenses................... 321,064 322,235 624,000* 853,000 656,850 616,339 623,893
General & Administrative............. 11,193 6,877 48,000* 28,000 74,334 87,647 101,787
Depreciation......................... 172,500 172,500 345,000* 352,000 404,822 395,353 390,747
Interest Expense..................... 265,126 267,766 534,000* 539,000 577,734 633,840 641,165
Property Taxes....................... 57,426 60,770 116,000* 115,000 115,295 124,769 89,106
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Expenses.............. $827,309 $830,148 1,667,000* $1,887,000 $1,829,035 $1,857,948 $1,846,698
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (loss).................... $ 23,813 $ 26,714 $ 113,000* $ (219,000) $ (289,081) $ (331,825) $ (207,840)
======== ======== ========== ========== ========== ========== ==========
Extraordinary (loss)................. $ $ $ $ $ $ (67,883)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (loss).................... $ $ $ $ $ $ (275,723)
======== ======== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Information prepared on an Income Tax Basis.
S-76
<PAGE> 1450
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $23,813 for the six months ended
June 30, 1998, compared to $26,714 for the six months ended June 30, 1997, a
decrease in net income of $2,901, or 10.86%. This decrease was primarily the
result of a greater increase in operating expenses than in rental revenues.
Revenues
Rental and other property revenues from the partnership's property totaled
$851,122 for the six months ended June 30, 1998, compared to $856,862 for the
six months ended June 30, 1997, a decrease of $5,740, or 0.67%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $321,064 for the
six months ended June 30, 1998, compared to $322,235 for the six months ended
June 30, 1997, a decrease of $1,171 or 0.36%. Management expenses totaled
$44,101 for the six months ended June 30, 1998, compared to $42,639 for the six
months ended June 30, 1997, an increase of $1,462, or 3.43%.
General and Administrative Expenses
General and administrative expenses totaled $11,193 for the six months
ended June 30, 1998 compared to $6,877 for the six months ended June 30, 1997,
an increase of $4,316 or 62.76%. The increase is primarily due to an increase in
training expenses and office supply expenses.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $265,126 for the six months ended June 30, 1998, compared to
$267,766 for the six months ended June 30, 1997, a decrease of $2,640, or 0.99%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $113,000 for the year ended
December 31, 1997, compared to a net loss of $219,000 for the year ended
December 31, 1996. The increase in net income of $332,000 was primarily the
result of an increase in market rent and decrease in maintenance expenses. These
factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,780,000 for the year ended December 31, 1997, compared to $1,668,000 for the
year ended December 31, 1996, an increase of $112,000, or 6.71%. This increase
was primarily the result of an increase in market rent and an increase in
occupancy levels.
S-77
<PAGE> 1451
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $624,000 for the
year ended December 31, 1997, compared to $853,000 for the year ended December
31, 1996, a decrease of $229,000 or 26.85%. This decrease was primarily the
result of a decrease in maintenance expenses. Management expenses totaled
$87,000 for the year ended December 31, 1997, compared to $82,000 for the year
ended December 31, 1996, a increase of $5,000, or 6.10%. This increase was
primarily the result of an increase in rental revenue, as management fees are
calculated based on a percentage of revenue.
General and Administrative Expenses
General and administrative expenses totaled $48,000 for the year ended
December 31, 1997 compared to $28,000 for the year ended December 31, 1996, an
increase of $20,000 or 71.43%. The increase is primarily due to a increase in
general partner reimbursements and audit fees, as well as in office supplies.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $534,000 for the year ended December 31, 1997, compared to
$539,000 for the year ended December 31, 1996, a decrease of $5,000, or 0.93%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $219,000 for the year ended
December 31, 1996, compared to a net loss of $289,081 for the year ended
December 31, 1995. The increase in net income of $70,081 was primarily the
result of an increase in revenues. These factors are discussed in more detail in
the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,668,000 for the year ended December 31, 1996, compared to $1,539,954 for the
year ended December 31, 1995, an increase of $128,046, or 8.31%. This increase
was primarily a result of an increase in demand for corporate units from the
Coast Guard and a steel company.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $853,000 for the
year ended December 31, 1996, compared to $656,850 for the year ended December
31, 1995, an increase of $196,150 or 29.86%. This increase was primarily the
result of an increase in maintenance expense resulting from gutter repairs.
Management expenses totaled $82,000 for the year ended December 31, 1996,
compared to $77,155 for the year ended December 31, 1995, an increase of $4,845,
or 6.28%. The increase resulted from an increase in rental income.
General and Administrative Expenses
General and administrative expenses totaled $28,000 for the year ended
December 31, 1996 compared to $74,334 for the year ended December 31, 1995, a
decrease of $46,334 or 62.33%. The decrease is primarily due to a decrease in
legal and professional expenses as well as reclassing various general and
administrative expenses for 1995 to operating expenses for 1996.
S-78
<PAGE> 1452
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $539,000 for the year ended December 31, 1996, compared to
$577,734 for the year ended December 31, 1995, a decrease of $38,734, or 6.70%.
The decrease is due primarily to refinancing mortgage note payable which was due
April 1995.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $404,974 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership and
its affiliates are not liable to your partnership or any limited partner for any
acts performed or any failure to act by any of them performed or omitted in good
faith, provided that such course of conduct did not constitute fraud, gross
negligence or willful misconduct. As a result, unitholders might have a more
limited right of action in certain circumstances than they would have in the
absence of such a provision in your partnership's agreement of limited
partnership. The general partner of your partnership is owned by AIMCO. See
"Conflicts of Interest".
The general partner and its affiliates are entitled to indemnification by
your partnership against any loss or damage resulting from any act or omission
performed or omitted in good faith, which does not constitute fraud, gross
negligence or willful misconduct. Moreover, the general partner is not liable to
your partnership or the limited partners because any taxing authorities
disallowed or adjusted any deductions or credits in your partnership income tax
returns. As part of its assumption of liabilities in the consolidation, AIMCO
will indemnify the general partner of your partnership and their affiliates for
periods prior to and following the consolidation to the extent of the indemnity
under the terms of your partnership's agreement of limited partnership and
applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 0
1995........................................................ 0
1996........................................................ 0
1997........................................................ 495.00
1998 (through June 30)...................................... 1,113.75
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the
S-79
<PAGE> 1453
admission of the transferee as a substitute limited partner in your partnership
require the consent of the general partner of your partnership under your
partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner) was as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1994......................... 0 0.0% 0
1995......................... 0 0.0% 0
1996......................... 0 0.0% 0
1997......................... 1 .5% 1
1998 (through June 30)....... 0 0.0% 0
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in respect of its capacity as general partner of
your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994.................................................... $13,020
1995.................................................... 18,245
1996.................................................... 16,000
1997.................................................... 16,000
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995................................................... $77,155
1996................................................... 82,000
1997................................................... 87,000
1998 (through June 30)................................. 44,102
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-80
<PAGE> 1454
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The audited financial statements of Coastal Commons Limited Partnership at
December 31, 1997, 1996 and 1995 and for each of the years then ended, appearing
in this Prospectus Supplement have been audited by Ernst & Young, LLP
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
S-81
<PAGE> 1455
COASTAL COMMONS LIMITED PARTNERSHIP
INDEX FINANCIAL STATEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet -- Federal Income Tax Basis as of
June 30, 1998 (Unaudited)................................. F-2
Condensed Statements of Operations -- Federal Income Tax
Basis for the six months ended June 30, 1998 and 1997
(Unaudited)............................................... F-3
Condensed Statements of Cash Flows -- Federal Income Tax
Basis for the six months ended June 30, 1998 and 1997
(Unaudited)............................................... F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-6
Consolidated Balance Sheet as of December 31, 1997.......... F-7
Consolidated Statement of Operations for the year ended
December 31, 1997......................................... F-8
Consolidated Statement of Changes in Partners' Deficit for
the year ended December 31, 1997.......................... F-9
Consolidated Statement of Cash Flows for the year ended
December 31, 1997......................................... F-10
Notes to Consolidated Financial Statements.................. F-11
Independent Auditors' Report................................ F-16
Statement of Assets, Liabilities and Partners'
Deficit -- Federal Income Tax Basis as of December 31,
1997...................................................... F-17
Statement of Revenues, Expenses and Changes in Partners'
Deficit -- Federal Income Tax Basis for the year ended
December 31, 1997......................................... F-18
Notes to Financial Statements -- Federal Income Tax Basis... F-19
Independent Auditors' Report................................ F-22
Statement of Assets, Liabilities and Partners'
Deficit -- Federal Income Tax Basis as of December 31,
1996...................................................... F-23
Statement of Revenues, Expenses and Changes in Partners'
Deficit -- Federal Income Tax Basis for the year ended
December 31, 1996......................................... F-24
Notes to Financial Statements -- Federal Income Tax Basis... F-25
Independent Auditors' Report................................ F-28
Statement of Assets, Liabilities and Partners'
Deficit -- Federal Income Tax Basis as of December 31,
1995...................................................... F-29
Statement of Revenues, Expenses and Changes in Partners'
Deficit -- Federal Income Tax Basis for the year ended
December 31, 1995......................................... F-30
Notes to Financial Statements -- Federal Income Tax Basis... F-31
</TABLE>
F-1
<PAGE> 1456
COASTAL COMMONS LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET -- FEDERAL INCOME TAX BASIS
JUNE 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 404,974
Receivables and Deposits.................................... 64,958
Restricted Escrows.......................................... 152,426
Syndication Fees............................................ 1,605,000
Other Assets................................................ 214,159
Investment Property:
Land...................................................... 684,299
Building and related personal property.................... 8,578,165
----------
9,262,464
Less: Accumulated depreciation............................ 7,216,967 2,045,497
---------- -----------
Total Assets...................................... $ 4,487,014
===========
LIABILITIES AND PARTNERS' CAPITAL
Other Accrued Liabilities................................... $ 69,883
Property taxes payable...................................... 57,419
Tenant security deposits.................................... 46,354
Notes Payable............................................... 6,209,522
Partners' Deficit........................................... (1,896,164)
-----------
Total Liabilities and Partners' Capital........... $ 4,487,014
===========
</TABLE>
F-2
<PAGE> 1457
COASTAL COMMONS LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS -- FEDERAL INCOME TAX BASIS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $799,638 $794,057
Other Income.............................................. 51,484 62,805
(Gain) Loss on Disp of Property........................... -- --
Casualty Gain/Loss........................................ -- --
-------- --------
Total Revenues.................................... 851,122 856,862
Expenses:
Operating Expenses........................................ 321,064 322,235
General and Administrative Expenses....................... 11,193 6,877
Depreciation Expense...................................... 172,500 172,500
Interest Expense.......................................... 265,126 267,766
Property Tax Expense...................................... 57,426 60,770
-------- --------
Total Expenses.................................... 827,309 830,148
Net Income........................................ $ 23,813 $ 26,714
======== ========
</TABLE>
F-3
<PAGE> 1458
COASTAL COMMONS LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS -- FEDERAL INCOME TAX BASIS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ 23,813 $ 26,714
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 186,022 186,022
Changes in accounts:
Receivables and deposits and other assets............ (5,639) (31,973)
Accounts Payable and accrued expenses................ 58,656 29,118
--------- ---------
Net cash provided by (used in) operating
activities...................................... 262,852 209,881
--------- ---------
Investing Activities
Property improvements and replacements.................... (20,997) (37,133)
Net (increase)/decrease in restricted escrows............. (27,426) (26,904)
Net cash provided by (used in) investing
activities...................................... (48,423) (64,037)
--------- ---------
Financing Activities
Payments on mortgage...................................... (30,478) (28,089)
Partners' Distributions................................... (230,977) (100,026)
--------- ---------
Net cash provided by (used in) financing
activities...................................... (261,455) (128,115)
--------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... (47,026) 17,729
Cash and cash equivalents at beginning of year.............. 452,000 346,000
--------- ---------
Cash and cash equivalents at end of period.................. $ 404,974 $ 363,729
========= =========
</TABLE>
F-4
<PAGE> 1459
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Coastal Commons Limited
Partnership as of June 30, 1998 and for the six months ended June 30, 1998 and
1997 have been prepared in accordance with the accounting basis for federal
income tax reporting. Accordingly, they do not include all the information and
footnotes required by the accounting basis for federal income tax reporting for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997. It should be
understood that the accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
year.
F-5
<PAGE> 1460
REPORT OF INDEPENDENT AUDITORS
The Partners
Coastal Commons Limited Partnership
We have audited the accompanying consolidated balance sheet of Coastal
Commons Limited Partnership as of December 31, 1997 and the related consolidated
statements of operations, changes in partners' deficit and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coastal Commons
Limited Partnership at December 31, 1997 and the consolidated results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
August 31, 1998
Greenville, South Carolina
F-6
<PAGE> 1461
COASTAL COMMONS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 459
Receivables and deposits.................................... 57
Restricted escrows.......................................... 160
Loan costs, net of $65 amortization......................... 125
Other assets................................................ 9
Investment property, at cost (Notes B and D):
Land...................................................... $ 684
Buildings and related personal property................... 8,648
-------
9,332
Less accumulated depreciation............................. (4,338) 4,994
------- ------
$5,804
======
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 23
Security deposits and other tenant liabilities............ 41
Other liabilities......................................... 110
Mortgage note payable (Note B)............................ 6,240
------
6,414
Minority interest (Note A).................................. 18
Partners' deficit:
General partners.......................................... $ (7)
Limited partners (200 units issued and outstanding)....... (621) (628)
------- ------
$5,804
======
</TABLE>
See accompanying notes.
F-7
<PAGE> 1462
COASTAL COMMONS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,663
Other income.............................................. 124
-------
1,787
Expenses:
Operating................................................. $648
General and administrative................................ 48
Depreciation.............................................. 296
Interest.................................................. 534
Property taxes............................................ 118 1,644
---- -------
Net income.................................................. $ 143
=======
Net income allocated to general partners (1%)............... $ 1
Net income allocated to limited partners (99%).............. 142
-------
$ 143
=======
Net income per limited partnership unit..................... $707.85
=======
</TABLE>
See accompanying notes.
F-8
<PAGE> 1463
COASTAL COMMONS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- -----
<S> <C> <C> <C>
Deficit at December 31, 1996................................ $(7) $(664) $(671)
Net income.................................................. 1 142 143
Distributions to partners................................... (1) (99) (100)
--- ----- -----
Deficit at December 31, 1997................................ $(7) $(621) $(628)
=== ===== =====
</TABLE>
See accompanying notes.
F-9
<PAGE> 1464
COASTAL COMMONS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities
Net income................................................ $ 143
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 296
Amortization of loan costs and mortgage discount....... 29
Change in accounts:
Receivables and deposits............................. (7)
Other assets......................................... (9)
Accounts payable..................................... (55)
Tenant security deposit liabilities.................. 5
Other liabilities.................................... 21
-----
Net cash provided by operating activities................. 423
Cash flows from investing activities
Property improvements and replacements.................... (64)
Deposits to restricted escrows............................ (60)
-----
Net cash used in investing activities..................... (124)
Cash flows from financing activities
Principal payments on mortgage notes payable.............. (59)
Distributions to partners................................. (100)
-----
Net cash used in financing activities..................... (159)
-----
Net increase in cash and cash equivalents................. 140
Cash and cash equivalents at December 31, 1996............ 319
-----
Cash and cash equivalents at December 31, 1997............ $ 459
=====
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 507
=====
</TABLE>
See accompanying notes.
F-10
<PAGE> 1465
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Coastal Commons Limited Partnership (the "Partnership") was organized as a
limited partnership under the laws of the State of South Carolina pursuant to a
Certificate and Agreement of Limited Partnership dated June 29, 1984 and
extending to December 31, 2014, unless terminated sooner. Two hundred units of
limited partnership interests, an individual general partner interest and two
corporate general partner interests were issued. The Partnership owns and
operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt. Pleasant,
South Carolina.
Principles of Consolidation
The consolidated financial statements include all of the accounts of the
Partnership's 79%-owned subsidiary Hibben Ferry Recreation Center, which owns
recreational property used jointly by Hibben Ferry Apartments and a condominium
complex owned and operated by an unaffiliated party. All significant
intercompany accounts have been eliminated in consolidation. Minority interest
represents the 21% non-affiliated ownership interest in Hibben Ferry Recreation
Center.
Investment Property
Investment property is stated at cost. Acquisition fees are capitalized as
a cost of real estate. The Partnership records impairment losses on long-lived
assets used in operations when events and circumstances indicated that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets. No
adjustments for impairment of value were necessary for the year ended December
31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Risks and Uncertainties
The real estate business is highly competitive. The Partnership's real
property investments are subject to competition from similar types of properties
in the vicinities in which they are located and the Partnership is not a
significant factor in its industry. In addition, various limited partnerships
have been formed by related parties to engage in business which may be
competitive with the Partnership.
Cash and Cash Equivalents
Cash on hand and in banks, and money market funds and certificates of
deposit with original maturities of three months or less are considered to be
unrestricted cash. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.
Fair Value of Financial Instruments
The Partnership believes that the carrying amount of its financial
instruments (except for long term debt) approximates their fair value due to the
short term maturity of these instruments. The fair value of the Partnership's
long-term debt, after discounting the scheduled loan payments at an estimated
borrowing rate currently available to the Partnership, approximates its carrying
value.
F-11
<PAGE> 1466
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loan Costs
Loan costs are being amortized on a straight-line basis over the life of
the loan.
Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease and such deposits are included in "Receivables and
deposits." Deposits are refunded when the tenant vacates the apartment if there
has been no damage to the unit and the tenant is current on its rental payments.
Restricted Escrows
A Replacement Reserve was established at the time of the refinancing of the
mortgage note payable encumbering the apartment property to cover necessary
costs and expenses incurred for capital improvements. The Partnership is
required to make a monthly deposit of $4,000 to the reserve. At December 31,
1997, the account balance was approximately $125,000. There is also
approximately $35,000 in replacement reserves for the Hibben Ferry Recreation
Center.
Partnership Allocations
Net earnings or loss, distributions to partners, and taxable income or loss
are allocated to the partners in accordance with the partnership agreement.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less. Rental revenue is recognized as earned.
Advertising Costs
The Partnership expenses the costs of advertising as incurred.
Depreciation
Building and improvements are depreciated using the straight-line method
over the estimated useful lives of the assets, ranging from 5 to 30 years.
NOTE B -- MORTGAGE NOTE PAYABLE
The mortgage note of approximately $6,240,000 bears interest at 8.08% and
is payable in monthly principal and interest installments of approximately
$47,000 with a balloon payment of approximately $5,909,000 at maturity on July
1, 2002.
The mortgage note payable is non-recourse and requires prepayment penalties
if repaid prior to maturity and prohibits resale of the property subject to the
existing indebtedness. The mortgage note payable is secured by pledge of the
apartment property and by pledge of revenues from the apartment property.
F-12
<PAGE> 1467
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal payments of the mortgage note payable subsequent to
December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1998....................................................... $ 64
1999....................................................... 69
2000....................................................... 75
2001....................................................... 81
2002....................................................... 5,951
------
$6,240
======
</TABLE>
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the
controlling ownership interest in the Partnership's Managing General Partner,
with certain affiliates of Insignia providing property management and asset
management services to the Partnership.
The following payments were made to Insignia and its affiliates in 1997 (in
thousands):
<TABLE>
<S> <C>
Property management fees.................................... $87
General partner expenses.................................... 12
Asset management fees....................................... 4
</TABLE>
Insignia entered into an Agreement and Plan of Merger, dated as of May 26,
1998, (as subsequently amended and restated, the "Merger Agreement") with
Apartment Investment and Management Company ("AIMCO"), pursuant to which
Insignia will merge its national residential property management operations and
its controlling interest in Insignia Properties Trust with and into AIMCO, with
AIMCO as the survivor. Consummation of the Merger, which is anticipated to occur
in the third quarter of 1998, is subject to certain conditions, including the
approval of the stockholders of Insignia (but not the approval of the
stockholders of AIMCO). If the closing occurs, AIMCO will then control the
General Partner of the Partnership.
For the period of January 1, 1997, to August 31, 1997, the Partnership
insured its property under a master policy through an agency and insurer
unaffiliated with the Managing General Partner. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the master policy. The agent assumed the financial obligations to the
affiliate of the Managing General Partner who received payments on these
obligations from the agent. The amount of the Partnership's insurance premiums
that accrued to the benefit of the affiliate of the Managing General Partner by
virtue of the agent's obligations was not significant.
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
(IN THOUSANDS)
<TABLE>
<CAPTION>
BUILDINGS COST
AND RELATED CAPITALIZED
PERSONAL SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION
----------- ------------ ---- ----------- -------------
<S> <C> <C> <C> <C>
Hibben Ferry Apartments
Mount Pleasant, South Carolina................. $6,240 $684 $8,027 $490
Hibben Ferry Recreation.......................... -- -- 121 10
------ ---- ------ ----
Totals........................................... $6,240 $684 $8,148 $500
====== ==== ====== ====
</TABLE>
F-13
<PAGE> 1468
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GROSS AMOUNT AT WHICH CARRIED
(IN THOUSANDS)
<TABLE>
<CAPTION>
BUILDINGS
AND
RELATED DEPRECIABLE
PERSONAL ACCUMULATED DATE LIFE --
DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS
----------- ---- ----------- ------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Hibben Ferry Apartments.................... $684 $8,517 $9,201 $4,277 1984 5-30
Hibben Ferry Recreation.................... -- 131 131 61 1984 5-30
---- ------ ------ ------
Totals..................................... $684 $8,648 $9,332 $4,338
==== ====== ====== ======
</TABLE>
The depreciable lives included above are for the buildings and components.
The depreciable live for related personal property are for 5 to 7 years.
Reconciliation of "Investment Property and Accumulated Depreciation" (in
thousands):
<TABLE>
<S> <C>
Investment Property
Balance at beginning of year.............................. $9,268
Property improvements..................................... 64
------
Balance at end of year.................................... $9,332
======
Accumulated Depreciation
Balance at beginning of year.............................. $4,042
Additions charged to expense.............................. 296
------
Balance at end of year.................................... $4,338
======
</TABLE>
The aggregate cost of the investment property for Federal income tax
purposes at December 31, 1997 is $9,241,000. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1997 is $7,044,000.
NOTE E -- INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnership.
The following is a reconciliation of reported net income and Federal
taxable loss (in thousands, except per unit data):
<TABLE>
<S> <C>
Net income as reported...................................... $ 143
Add (deduct):
Depreciation differences.................................. (54)
Rental Income............................................. 21
Other..................................................... 3
-------
Net income -- Federal income tax basis...................... $ 113
-------
Federal taxable income per limited partnership unit......... $559.35
=======
</TABLE>
F-14
<PAGE> 1469
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets and liabilities (in thousands):
<TABLE>
<S> <C>
Net liabilities as reported................................. $ (628)
Investment property......................................... (2,713)
Syndication fees............................................ 1,605
Other....................................................... 47
-------
Net liabilities -- tax basis................................ $(1,689)
=======
</TABLE>
NOTE F -- YEAR 2000 (UNAUDITED)
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment and
will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed not
later than December 31, 1998, which is prior to any anticipated impact on its
operating systems. The General partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-15
<PAGE> 1470
REPORT OF INDEPENDENT AUDITORS
The Partners
Coastal Commons Limited Partnership
We have audited the accompanying statement of assets, liabilities and
partners' deficit -- Federal income tax basis of Coastal Commons Limited
Partnership (the "Partnership") as of December 31, 1997, and the related
statement of revenues, expenses and changes in partners' deficit -- Federal
income tax basis for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As more fully described in Note A, these financial statements have been
prepared on the accounting basis used for Federal income tax purposes which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' deficit of
Coastal Commons Limited Partnership at December 31, 1997, and its revenues,
expenses and changes in partners' deficit for the year then ended, on the basis
of accounting described in Note A.
/s/ ERNST & YOUNG LLP
February 17, 1998
Greenville, South Carolina
F-16
<PAGE> 1471
COASTAL COMMONS LIMITED PARTNERSHIP
STATEMENT OF ASSETS, LIABILITIES AND
PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS
DECEMBER 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 452
Receivables and deposits.................................... 57
Restricted escrows.......................................... 125
Deferred charges............................................ 1,605
Loan costs, net of $65 amortization......................... 125
Other assets................................................ 9
Apartment property, at cost (Note B):
Land...................................................... $ 684
Buildings and related personal property................... 8,557
------
9,241
Less accumulated depreciation............................. 7,044 2,197
------
Investment in Hibben Ferry Recreation, Inc. (Note A)........ 96
-------
$ 4,666
=======
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 22
Security deposits and other tenant liabilities............ 41
Other liabilities......................................... 52
Mortgage note payable (Note B)............................ 6,240
-------
6,355
Partners' (deficit)......................................... (1,689)
-------
$ 4,666
=======
</TABLE>
See accompanying notes.
F-17
<PAGE> 1472
COASTAL COMMONS LIMITED PARTNERSHIP
STATEMENT OF REVENUES, EXPENSES AND CHANGES
IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,665
Other income.............................................. 115
-------
1,780
Expenses:
Operating................................................. $624
General and administrative................................ 48
Depreciation.............................................. 345
Interest.................................................. 534
Property taxes............................................ 116 1,667
---- -------
Excess of revenues over expenses............................ 113
Partners' (deficit) at December 31, 1996.................... (1,702)
Distributions paid in 1997.................................. (100)
-------
Partners' (deficit) at December 31, 1997.................... $(1,689)
=======
</TABLE>
See accompanying notes.
F-18
<PAGE> 1473
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS
DECEMBER 31, 1997
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Coastal Commons Limited Partnership (the "Partnership") was organized as a
limited partnership under the laws of the State of South Carolina pursuant to a
Certificate and Agreement of Limited Partnership dated June 29, 1984 and
extending to December 31, 2014, unless terminated sooner. The Partnership owns
and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt.
Pleasant, South Carolina.
In addition, the Partnership owns 240 of the 304 outstanding shares of
Hibben Ferry Recreation, Inc., a non-profit corporation which owns recreational
property used jointly by Hibben Ferry Apartments and a condominium complex owned
and operated by an unaffiliated party.
Basis of Accounting
The financial statements are prepared on the accrual basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The tax basis used differs
from GAAP primarily because on the tax basis (1) certain rental income received
in advance is recorded as income in the year received rather than in the year
earned, (2) buildings and related personal property are depreciated using the
lives specified under the accelerated cost recovery system ("ACRS") or the
modified accelerated cost recovery system ("MACRS") instead of over the
estimated lives of the assets, and (3) the investment in Hibben Ferry
Recreation, Inc. is carried on the cost method instead of consolidating the
accounts of this majority-owned subsidiary, and (4) recognition and amortization
of syndication costs.
The Partnership's Federal income tax returns are subject to examination by
taxing authorities. Because the application of tax laws and regulations to many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date upon final
determinations by taxing authorities.
Depreciation
Under ACRS, depreciation is based on accelerated methods (1) for real
property over 18 years for additions before May 9, 1985 and 19 years for
additions after May 8, 1985 and before January 1, 1987 and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, MACRS is used (1) for real property over 27 1/2 years
for additions after December 31, 1986 and (2) for personal property over 7 years
for additions after December 31, 1986.
Restricted Escrows
Replacement Reserve -- At the time of the refinancing of Hibben Ferry
Apartments in 1995, a replacement reserve was established to cover necessary
costs and expenses incurred for capital improvements. The Partnership is
required to make a monthly deposit of $4,000 to the reserve. At December 31,
1997, the account balance was approximately $125,000.
Offering Costs
Costs incurred in connection with the solicitation of equity capital of
approximately $1,605,000 have been capitalized and represent a deferred charge
deductible upon termination of the Partnership.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
F-19
<PAGE> 1474
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED)
Cash and Cash Equivalents
It is the Partnership's policy to classify all liquid short-term
investments with a maturity of three months or less as cash equivalents. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease and includes the deposits in "Receivables and deposits".
Deposits are refunded when the tenant vacates the apartment if there has been no
damage to the unit.
Loan Costs
Loan costs are being amortized on a straight-line basis over the life of
the loan.
Income Taxes
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Advertising
The Partnership expenses the costs of advertising as incurred.
NOTE B -- MORTGAGE NOTE PAYABLE
The mortgage note of approximately $6,240,000 bears interest at 8.08% and
is payable in monthly principal and interest installments of approximately
$47,000 with a balloon payment of approximately $5,909,000 at maturity on July
1, 2002.
The mortgage note payable is non-recourse and requires prepayment penalties
if repaid prior to maturity and prohibits resale of the property subject to the
existing indebtedness. The mortgage note payable is secured by pledge of the
apartment property and by pledge of revenues from the apartment property.
Scheduled principal payments of the mortgage note payable subsequent to
December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1998....................................................... $ 64
1999....................................................... 69
2000....................................................... 75
2001....................................................... 81
2002....................................................... 5,951
------
$6,240
======
</TABLE>
F-20
<PAGE> 1475
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED)
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the
controlling ownership interest in the Partnership's Managing General Partner,
with certain affiliates of Insignia providing property management and asset
management services to the Partnership.
The following payments were made to Insignia and its affiliates in 1997 (in
thousands):
<TABLE>
<S> <C>
Property management fees.................................... $87
General partner expenses.................................... 12
Asset management fees....................................... 4
</TABLE>
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-21
<PAGE> 1476
REPORT OF INDEPENDENT AUDITORS
The Partners
Coastal Commons Limited Partnership
We have audited the accompanying statement of assets, liabilities and
partners' deficit -- Federal income tax basis of Coastal Commons Limited
Partnership (the "Partnership") as of December 31, 1996, and the related
statement of revenues, expenses and changes in partners' deficit -- Federal
income tax basis for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As more fully described in Note A, these financial statements have been
prepared on the accounting basis used for Federal income tax purposes which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' deficit of
Coastal Commons Limited Partnership as of December 31, 1996, and its revenues,
expenses and changes in partners' deficit for the year then ended, on the basis
of accounting described in Note A.
/s/ ERNST & YOUNG LLP
February 26, 1997
Greenville, South Carolina
F-22
<PAGE> 1477
COASTAL COMMONS LIMITED PARTNERSHIP
STATEMENT OF ASSETS, LIABILITIES AND
PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS
DECEMBER 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 308
Restricted -- tenant security deposits.................... 38
Tenant accounts receivable.................................. 12
Restricted escrows.......................................... 71
Deferred charges............................................ 1,605
Loan costs, net of $38 amortization......................... 154
Apartment property, at cost (Note B):
Land...................................................... $ 684
Buildings and related personal property................... 8,494
------
9,178
Less accumulated depreciation............................. 6,699 2,479
------
Investment in Hibben Ferry Recreation, Inc. (Note A)........ 96
-------
$ 4,763
=======
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 78
Security deposits and other tenant liabilities............ 36
Accrued interest payable.................................. 43
Other liabilities......................................... 9
Mortgage note payable (Note B)............................ 6,299
-------
6,465
Partners' (deficit)......................................... (1,702)
-------
$ 4,763
=======
</TABLE>
See accompanying notes.
F-23
<PAGE> 1478
COASTAL COMMONS LIMITED PARTNERSHIP
STATEMENT OF REVENUES, EXPENSES AND CHANGES
IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,520
Other income.............................................. 148
-------
1,668
Expenses:
Operating................................................. $547
General and administrative................................ 28
Maintenance............................................... 306
Depreciation.............................................. 352
Interest.................................................. 539
Property taxes............................................ 115 1,887
---- -------
Excess of expenses over revenues............................ (219)
Partners' (deficit) at December 31, 1995.................... (1,483)
-------
Partners' (deficit) at December 31, 1996.................... $(1,702)
=======
</TABLE>
See accompanying notes.
F-24
<PAGE> 1479
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS
DECEMBER 31, 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Coastal Commons Limited Partnership (the "Partnership") was organized as a
limited partnership under the laws of the State of South Carolina pursuant to a
Certificate and Agreement of Limited Partnership dated June 29, 1984 and
extending to December 31, 2014, unless terminated sooner. The Partnership owns
and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt.
Pleasant, South Carolina.
In addition, the Partnership owns 240 of the 304 outstanding shares of
Hibben Ferry Recreation, Inc., a non-profit corporation which owns recreational
property used jointly by Hibben Ferry Apartments and a condominium complex owned
and operated by an unaffiliated party.
Basis of Accounting
The financial statements are prepared on the accrual basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The tax basis used differs
from GAAP primarily because on the tax basis (1) certain rental income received
in advance is recorded as income in the year received rather than in the year
earned, (2) buildings and related personal property are depreciated using the
lives specified under the accelerated cost recovery system ("ACRS") or the
modified accelerated cost recovery system ("MACRS") instead of over the
estimated lives of the assets, and (3) the investment in Hibben Ferry
Recreation, Inc. is carried on the cost method instead of consolidating the
accounts of this majority-owned subsidiary, and (4) recognition and amortization
of syndication costs.
The Partnership's Federal income tax returns are subject to examination by
taxing authorities. Because the application of tax laws and regulations to many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date upon final
determinations by taxing authorities.
Depreciation
Under ACRS, depreciation is based on accelerated methods (1) for real
property over 18 years for additions before May 9, 1985 and 19 years for
additions after May 8, 1985 and before January 1, 1987 and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, MACRS is used (1) for real property over 27 1/2 years
for additions after December 31, 1986 and (2) for personal property over 7 years
for additions after December 31, 1986.
Restricted Escrows
Replacement Reserve -- At the time of the refinancing of Hibben Ferry
Apartments in 1995, a replacement reserve was established to cover necessary
costs and expenses incurred for capital improvements. The Partnership is
required to make a monthly deposit of $4,000 to the reserve. At December 31,
1996, the account balance was approximately $71,000.
Offering Costs
Costs incurred in connection with the solicitation of equity capital of
approximately $1,605,000 have been capitalized and represent a deferred charge
deductible upon termination of the Partnership.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
F-25
<PAGE> 1480
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED)
Cash and Cash Equivalents -- Unrestricted Cash
It is the Partnership's policy to classify all liquid short-term
investments with a maturity of three months or less as cash equivalents. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Restricted Cash -- Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease and considers the deposits to be restricted cash. Deposits
are refunded when the tenant vacates the apartment if there has been no damage
to the unit.
Loan Costs
Loan costs are being amortized on a straight-line basis over the life of
the loan.
Income Taxes
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Advertising
The Partnership expenses the costs of advertising as incurred.
NOTE B -- MORTGAGE NOTE PAYABLE
The mortgage note of approximately $6,299,000 bears interest at 8.08% and
is payable in monthly principal and interest installments of approximately
$47,000 with a balloon payment of approximately $5,909,000 at maturity on July
1, 2002.
The mortgage note payable is non-recourse and requires prepayment penalties
if repaid prior to maturity and prohibits resale of the property subject to the
existing indebtedness. The mortgage note payable is secured by pledge of the
apartment property and by pledge of revenues from the apartment property.
Scheduled principal payments of the mortgage note payable subsequent to
December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1997....................................................... $ 59
1998....................................................... 64
1999....................................................... 69
2000....................................................... 75
2001....................................................... 81
Thereafter................................................. 5,951
------
$6,299
======
</TABLE>
F-26
<PAGE> 1481
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED)
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the
controlling ownership interest in the Partnership's Managing General Partner,
with certain affiliates of Insignia providing property management and asset
management services to the Partnership.
The following payments were made to Insignia and its affiliates in 1996 (in
thousands):
<TABLE>
<S> <C>
Property management fees.................................... $82
General partner expenses.................................... 16
</TABLE>
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-27
<PAGE> 1482
REPORT OF INDEPENDENT AUDITORS
The Partners
Coastal Commons Limited Partnership
We have audited the accompanying statement of assets, liabilities and
partners' deficit -- Federal income tax basis of Coastal Commons Limited
Partnership (the "Partnership") as of December 31, 1995, and the related
statement of revenues, expenses and changes in partners' deficit -- Federal
income tax basis for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' deficit of
Coastal Commons Limited Partnership as of December 31, 1995, and its revenues,
expenses and changes in partners' deficit for the year then ended, on the basis
of accounting described in Note 1.
/s/ ERNST & YOUNG LLP
March 5, 1996
Greenville, South Carolina
F-28
<PAGE> 1483
COASTAL COMMONS LIMITED PARTNERSHIP
STATEMENT OF ASSETS, LIABILITIES AND
PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
Cash, including tenant security deposits of $31,140......... $ 220,858
Tenant accounts receivable.................................. 5,557
Escrows for taxes and insurance............................. 9,097
Restricted escrows.......................................... 125,575
Deferred charges (Note 1)................................... 1,605,036
Loan costs, net of $11,268 amortization..................... 178,037
Apartment property, at cost (Note 2):
Land...................................................... $ 684,299
Buildings and related personal property................... 8,431,432
----------
9,115,731
Less accumulated depreciation............................. 6,346,723 2,769,008
----------
Investment in Hibben Ferry Recreation, Inc. (Note 1)........ 96,000
-----------
$ 5,009,168
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 56,425
Security deposits and other tenant liabilities............ 30,027
Accrued interest payable.................................. 42,781
Other liabilities......................................... 8,783
Mortgage note payable (Note 2)............................ 6,353,672
-----------
6,491,688
Partners' (deficit)......................................... (1,482,520)
-----------
$ 5,009,168
===========
</TABLE>
See accompanying notes.
F-29
<PAGE> 1484
COASTAL COMMONS LIMITED PARTNERSHIP
STATEMENT OF REVENUES, EXPENSES AND CHANGES
IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Revenues:
Apartment rentals......................................... $ 1,438,405
Other income.............................................. 101,549
-----------
1,539,954
Expenses:
Operating................................................. $419,918
General and administrative................................ 74,334
Maintenance............................................... 141,532
Property management fee (Note 3).......................... 77,155
General partner expenses (Note 3)......................... 18,245
Depreciation.............................................. 404,822
Interest.................................................. 577,734
Property taxes............................................ 115,295 1,829,035
-------- -----------
Excess of expenses over revenues............................ (289,081)
Partners' (deficit) at December 31, 1994.................... (1,193,439)
-----------
Partners' (deficit) at December 31, 1995.................... $(1,482,520)
===========
</TABLE>
See accompanying notes.
F-30
<PAGE> 1485
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Coastal Commons Limited Partnership (the "Partnership") was organized as a
limited partnership under the laws of the State of South Carolina pursuant to a
Certificate and Agreement of Limited Partnership dated June 29, 1984 and
extending to December 31, 2014, unless terminated sooner. The Partnership owns
and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt.
Pleasant, South Carolina.
In addition, the Partnership owns 240 of the 304 outstanding shares of
Hibben Ferry Recreation, Inc., a non-profit corporation which owns recreational
property used jointly by Hibben Ferry Apartments and a condominium complex owned
and operated by an unaffiliated party.
Basis of Accounting
The financial statements are prepared on the accrual basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The tax basis used differs
from GAAP primarily because on the tax basis (1) certain rental income received
in advance is recorded as income in the year received rather than in the year
earned, (2) buildings and related personal property are depreciated using the
lives specified under the accelerated cost recovery system ("ACRS") or the
modified accelerated cost recovery system ("MACRS") instead of over the
estimated lives of the assets, and (3) the investment in Hibben Ferry
Recreation, Inc. is carried on the cost method instead of consolidating the
accounts of this majority-owned subsidiary, and (4) recognition and amortization
of syndication costs.
The Partnership's Federal income tax returns are subject to examination by
taxing authorities. Because the application of tax laws and regulations to many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date upon final
determinations by taxing authorities.
Depreciation
Under ACRS, depreciation is based on accelerated methods (1) for real
property over 18 years for additions before May 9, 1985 and 19 years for
additions after May 8, 1985 and before January 1, 1987 and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, MACRS is used (1) for real property over 27 1/2 years
for additions after December 31, 1986 and (2) for personal property over 7 years
for additions after December 31, 1986.
Restricted Escrows
Repair and Remediation Reserve -- At the time of the refinancing of Hibben
Ferry Apartments in 1995, $104,875 was designated for a repair and remediation
reserve for general maintenance, repairs, or corrective work at the property to
be completed in 1995. At December 31, 1995, the entire balance remained in the
escrow. All work has been completed and the funds will be released upon
inspection of the work by the Mortgagee in 1996.
Replacement Reserve -- In addition to the Repair and Remediation Reserve
established in 1995, a replacement reserve was established to cover necessary
costs and expenses incurred for capital improvements. The Partnership is
required to make a monthly deposit of $4,140 to the reserve. At December 31,
1995, the account balance was $20,700.
F-31
<PAGE> 1486
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED)
Offering Costs
Costs incurred in connection with the solicitation of equity capital of
$1,605,036 have been capitalized and represent a deferred charge deductible upon
termination of the Partnership.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Cash
The Partnership considers only unrestricted cash to be cash. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Restricted Cash -- Tenant Security Deposits
The Partnership requires security deposits from all lessees for the
duration of the lease. Deposits are refunded when the tenant vacates the
apartment if there has been no damage to the unit.
Loan Costs
Loan costs are being amortized on a straight-line basis over the life of
the loan.
Income Taxes
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Advertising
The Partnership expenses the costs of advertising as incurred.
2. MORTGAGE NOTE PAYABLE
The mortgage note of $6,353,672 bears interest at 8.08% and is payable in
monthly principal and interest installments of $47,134 with a balloon payment of
$5,901,749 at maturity on July 1, 2002.
The mortgage note payable is non-recourse and requires prepayment penalties
if repaid prior to maturity and prohibits resale of the property subject to the
existing indebtedness. The mortgage note payable is secured by pledge of the
apartment property and by pledge of revenues from the apartment property.
F-32
<PAGE> 1487
COASTAL COMMONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED)
Scheduled principal payments of the mortgage note payable subsequent to
December 31, are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 54,204
1997..................................................... 58,749
1998..................................................... 63,676
1999..................................................... 69,016
2000..................................................... 74,803
Thereafter............................................... 6,033,224
----------
$6,353,672
==========
</TABLE>
3. TRANSACTIONS WITH AFFILIATED PARTIES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the
controlling ownership interest in the Partnership's Managing General Partner,
with certain affiliates of Insignia providing property management and asset
management services to the Partnership.
The following payments were made to Insignia and its affiliates in 1995:
<TABLE>
<S> <C>
Property management fees.................................... $77,155
General partner expenses.................................... 18,245
</TABLE>
NOTE 4 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-33
<PAGE> 1488
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1489
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the Partnership's present capitalization or distribution policy; or
any other material changes in the Partnership's structure or business.
A-2
<PAGE> 1490
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1491
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE WE WILL ONLY ACCEPT A MAXIMUM OF % OF
ANY IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF THE YOU WILL NOT PAY ANY FEES OR COMMISSIONS
OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a small number of apartment properties to
holding an interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1492
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-16
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-17
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of DFW
Apartment Investors Limited Partnership.... S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
</TABLE>
i
<PAGE> 1493
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-72
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
Distributions and Transfers of Units......... S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-78
LEGAL MATTERS.................................. S-78
EXPERTS........................................ S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1494
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
DFW Apartment Investors Limited Partnership. For each unit that you tender,
you may choose to receive of our Tax-Deferral %
Partnership Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred
to as "Common OP Units"), or $ in cash (subject, in each case to
adjustment for any distributions paid to you during the offer period). If
you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,394 million and stockholders' equity of $1,314 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972, total debt of $1,626 and stockholders' equity
of $1,844.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner (the "general partner") of
your partnership and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1495
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 1496
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $2,600 per unit for the year ended
December 31, 1997. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis). This is
equivalent to distributions of $ per year on the number of Tax-Deferral
% Preferred OP Units, or distributions of $ year on the number of
Tax-Deferral Common OP Units, that you would receive in an exchange for
each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a small number of apartment
properties to holding an interest in an operating business that owns and
manages a large portfolio of properties, with risks that do not exist for
your partnership. You should review the risk factors in this Prospectus
Supplement and in the accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income
S-3
<PAGE> 1497
tax purposes, as a partial sale of such units for cash, and as a partial
tax-free contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
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Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
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<PAGE> 1499
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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<PAGE> 1500
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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<PAGE> 1501
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a small
number of apartment properties to an interest in a partnership that invests in
and manages a large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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<PAGE> 1502
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
S-9
<PAGE> 1503
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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<PAGE> 1504
rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently own a 13.35% limited partnership interest in your
partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the
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benefits that your general partner expects to result from the offer. For
example, a partner of your partnership would have no opportunity for
liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
S-13
<PAGE> 1507
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
S-14
<PAGE> 1508
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
S-15
<PAGE> 1509
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a
S-16
<PAGE> 1510
number of factors, including your financial needs, other financial
opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Consideration to Other Values. In evaluating the offer,
your general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, the general partner of your partnership is entitled to fees for
its services as general partner while the general partner of the AIMCO Operating
Partnership is not entitled to such fees.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment,
S-17
<PAGE> 1511
voting rights, distributions and liquidity and transferability/redemption. For
example, unlike the AIMCO OP Units, you have no redemption rights with respect
to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual fee of $40,000 beginning in 1990 and increasing annually at a rate of 5%
beginning in 1991 and may receive reimbursement for expenses generated in its
capacity as general partner from your partnership. The property manager received
management fees of $195,660 in 1996, $209,666 in 1997 and $107,798 for the first
six months of 1998. We have no current intention of changing the fee structure
for your property manager. The general partner of your partnership receives an
annual fee of $40,000 beginning in 1990 and increasing annually at a rate of 5%
beginning in 1991 from your partnership.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. DFW Apartment Investors Limited
Partnership is a Delaware limited partnership which was formed on May 2, 1990
for the purpose of owning and operating a small number of apartment properties
located in Irving, Texas, Arlington, Texas and Euless, Texas, known as "Heather
Ridge Apartments," "Oak Forest Apartments" and "Hillcrest Apartments,"
respectively. In 1990, it completed a private placement of units that raised net
proceeds of approximately $20,600,000. Heather Ridge Apartments and Oak Forest
Apartments each consists of 204 apartment units and Hillcrest Apartments
consists of 298 apartment units. Your partnership has no employees.
Property Management. Since November 1997, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase
S-18
<PAGE> 1512
of equipment and supplies, and the selection and engagement of all vendors,
suppliers and independent contractors. The property manager is affiliated with
us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2040, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
current mortgage notes outstanding on "Heather Ridge Apartments" of $3,744,013,
on "Hillcrest Apartments" of $3,775,476 and on "Oak Forest Apartments" of
$2,898,497. All three mortgage notes are payable to AMI Capital, bear interest
at a rate of 7.53% and are due May 2003. Your partnership's agreement of limited
partnership also allows your general partner to lend funds to your partnership.
Currently, the general partner of your partnership has a loan outstanding to
your partnership of $ , bearing interest at a rate of %, due .
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 1513
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1514
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1515
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1516
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1517
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 1518
SUMMARY FINANCIAL INFORMATION OF DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
The summary financial information of DFW Apartment Investors Limited
Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The
summary financial information for DFW Apartment Investors Limited Partnership
for the years ended December 31, 1997 and 1996, and 1995, is based on audited
financial statements. This information should be read in conjunction with such
financial statements, including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Your
Partnership" included herein. See "Index to Financial Statements."
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues....... 2,163,821 0 4,261,022 4,010,607 3,785,716 3,633,991 3,461,667
Net Income/(Loss).... 60,864 0 123,692 271,754 846,434 849,576 857,699
Balance Sheet Data:
Real Estate, Net of
Accumulated
Depreciation............. 22,362,808 0 13,648,817 14,125,696 14,436,696 14,583,938 14,882,518
Total Assets......... 25,489,302 0 16,713,688 17,199,211 17,399,845 17,458,947 17,948,841
Mortgage Notes Payable,
including Accrued
Interest................. 10,494,293 0 10,579,050 10,671,464 0 0 0
Partners'
Capital/(Deficit)........ 5,573,534 0 5,512,670 5,939,092 16,827,388 16,932,047 17,373,449
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $1.125 $1.85 $0 $0
</TABLE>
S-25
<PAGE> 1519
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly,
although there can be no assurance, you might receive more consideration if you
do not tender your units and, instead, continue to hold your units and
ultimately receive proceeds from a liquidation of your partnership. However, you
may prefer to receive our offer consideration now rather than wait for uncertain
future net liquidation proceeds. Furthermore, your general partner has no
present intention to liquidate your partnership, and your partnership's
agreement of limited partnership does not require a sale of your partnership's
property by any particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 1520
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a small number of apartment
properties. In contrast, the AIMCO Operating Partnership is in the business of
acquiring, marketing, managing and operating a large portfolio of apartment
properties. While diversification of assets may reduce certain risks of
investment attributable to a single property or entity, there can be no
assurance as to the value or performance of our securities or our portfolio of
properties as compared to the value of your units or your partnership. Proceeds
of future asset sales or refinancings by the AIMCO Operating Partnership
generally will be reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 1521
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and the distributions with respect to
your units for the year ended December 31, 1997 were $2,600 per unit. This is
equivalent to distributions of $ per year on the number of Tax-Deferral %
Preferred OP Units, or distributions of $ year on the number of Tax-Deferral
Common OP Units, that you would receive in an exchange for each of your
partnership's units. Therefore, distributions with respect to the Preferred OP
Units and Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to your
units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
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MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently own a 13.35% limited partnership interest in your partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for
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investment, business, personal or other purposes, at their option. If your
partnership were to sell its assets and liquidate, you and your partners would
not need to rely upon capitalization of income or other valuation methods to
estimate the fair market value of your partnership's assets. Instead, such
assets would be valued through negotiations with prospective purchasers (in many
cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
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- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Preferred Quarterly Distributions. We pay quarterly distributions on the
Common OP Units. For the quarter ended June 30, 1998, we paid
distributions of Common OP Units. Historically, the quarterly
distributions paid on the Common OP Units have been equivalent to the
dividends paid on AIMCO's Class A Common Stock. We expect this to
continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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<PAGE> 1525
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY
DELAY IN MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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<PAGE> 1527
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought. Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998 (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998 (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 1539
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 1540
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 1541
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 1542
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 1543
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 1544
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 1545
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value, of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to
the Common OP Units are $2.25, and the distributions with respect to your
units for the year ended December 31, 1997 were $2,600. This is equivalent
to distributions of $ per year on the number of Tax-Deferral
% Preferred OP Units, or distributions of $ per year on the
number of Tax-Deferral Common OP Units, that you would receive in exchange
for each of your partnership's units. Therefore, distributions with respect
to the Preferred OP Units and Common OP Units that we are offering are
expected to be , immediately following our offer, than the
distributions with respect to your units. See "Comparison of Ownership of
Your Units and AIMCO OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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<PAGE> 1550
apartment properties, the manner in which your partnership's property is
sold and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets would be disposed of in an
orderly manner and not sold in forced or distressed sales where sellers might be
expected to dispose of their interests at substantial discounts to their actual
fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
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<PAGE> 1551
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning,
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among other things, any environmental liabilities, deferred maintenance and
estimated capital expenditure and replacement reserve requirements, the
determination and valuation of non-real estate assets and liabilities of your
partnership, the allocation of your partnership's net values between the general
partner, special limited partner and limited partners of your partnership, the
terms and conditions of any debt encumbering the partnership's property, and the
transaction costs and fees associated with a sale of the property. Stanger also
relied upon the assurance of your partnership, AIMCO, and the management of the
partnership's property that any financial statements, budgets, pro forma
statements, projections, capital expenditure estimates, debt, value estimates
and other information contained in this Prospectus Supplement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Delaware law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Heather Ridge Apartments, Oak Forest Partnership owns interests (either directly or through
Apartments and Hillcrest Apartments. subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2040. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, improve, The purpose of the AIMCO Operating Partnership is to
maintain, operate, lease, sell, dispose of, finance and conduct any business that may be lawfully conducted by
otherwise deal with your partnership's property. a limited partnership organized pursuant to the
Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as
agreement of limited partnership, your partnership may amended from time to time, or any successor to such
perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"),
the business of your partnership including borrowing provided that such business is to be conducted in a
money and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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<PAGE> 1555
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 206 units for cash time to the limited partners and to other persons, and
and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital
of limited partnership. The capital contribution need contributions as may be established by the general
not be equal for all limited partners and no action or partner in its sole discretion. The net capital
consent is required in connection with the admission of contribution need not be equal for all OP Unitholders.
any additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
The general partner may, without the consent of the Unitholder. See "Description of OP Units -- Management
limited partners, sell additional limited partnership by the AIMCO GP" in the accompanying Prospectus.
interests and, with the consent of the limited Subject to Delaware law, any additional partnership
partners, issue other equity interests. Such interests interests may be issued in one or more classes, or one
may be sold on such terms and conditions and the or more series of any of such classes, with such
additional limited partners shall have such rights and designations, preferences and relative, partici-
obligations as the general partner shall determine. In pating, optional or other special rights, powers and
the event the general partner sells additional limited duties as shall be determined by the general partner,
partner interests, prior to the sale of such interests, in its sole and absolute discretion without the
the general partner will offer such interests to the approval of any OP Unitholder, and set forth in a
original limited partners. written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute
partnership, your partnership may contract with the funds or other assets to its subsidiaries or other
general partner or its affiliates for various goods and persons in which it has an equity investment, and such
services, including without limitation, insurance, persons may borrow funds from the AIMCO Operating
insurance brokerage, mortgage brokerage in connection Partnership, on terms and conditions established in the
with financings and refinancings of your partnership's sole and absolute discretion of the general partner. To
property, management, rehabilitation, construction the extent consistent with the business purpose of the
supervision, leasing and property brokerage. The AIMCO Operating Partnership and the permitted
compensation paid under such contracts must be at the activities of the general partner, the AIMCO Operating
then prevailing market rates in the vicinity of your Partnership may transfer assets to joint ventures,
partnership's property. Your partnership may not make limited liability companies, partnerships,
loans to the general partner or its affiliates but the corporations, business trusts or other business
general partner and its affiliates may lend money to entities in which it is or thereby becomes a
your partnership if such loans are evidenced by participant upon such terms and subject to such
promissory notes, bear interest at commercially conditions consistent with the AIMCO Operating Part-
reasonable rates not in excess of 3% above the "base nership Agreement and applicable law as the general
rate" of the First National Bank of Boston and are partner, in its sole and absolute discretion, believes
subordinate to the obligations of your partnership to to be advisable. Except as expressly permitted by the
pay unrelated creditors. AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money, establish a line of credit and issue restrictions on borrowings, and the general partner has
evidences of indebtedness in furtherance of any of the full power and authority to borrow money on behalf of
purposes of your partnership and to secure such debt by the AIMCO Operating Partnership. The AIMCO Operating
mortgage, pledge or other lien on any of the assets of Partnership has credit agreements that restrict, among
your partnership. other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
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<PAGE> 1556
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles a limited partner to inspect the register kept with a statement of the purpose of such demand and at
by your partnership which lists the names of all such OP Unitholder's own expense, to obtain a current
limited partners and the number of units owned by each list of the name and last known business, residence or
limited partner at any reasonable time during normal mailing address of the general partner and each other
business hours. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the All management powers over the business and affairs of
exclusive right to manage and control your the AIMCO Operating Partnership are vested in AIMCO-GP,
partnership's business, to bind your partnership by its Inc., which is the general partner. No OP Unitholder
sole signature and take any action it deems necessary has any right to participate in or exercise control or
or advisable in connection with the business of your management power over the business and affairs of the
partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have
your partnership's agreement of limited partnership, the right to vote on certain matters described under
the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP
take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may
connection with the business of your partnership not be removed by the OP Unitholders with or without
without the consent of the limited partners. No limited cause.
partner has any authority or right to act for or bind
your partnership or participate in or have any control In addition to the powers granted a general partner of
over your partnership's business except as required by a limited partnership under applicable law or that are
law. granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general
and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating
accountable for damages or otherwise to your Partnership for losses sustained, liabilities incurred
partnership or any limited partner for any acts or benefits not derived as a result of errors in
performed or any failure to act by any of them if they judgment or mistakes of fact or law of any act or
determined, in good faith, that such acts or failure to omission if the general partner acted in good faith.
act was in the best interests of your partnership, and The AIMCO Operating Partnership Agreement provides for
such course of conduct did not constitute negligence or indemnification of AIMCO, or any director or officer of
misconduct on the part of such party. In addition, the AIMCO (in its capacity as the previous general partner
general partner and its affiliates are entitled to of the AIMCO Operating Partnership), the general
indemnification by your partnership against any loss, partner, any officer or director of general partner or
damage, liability, cost or expense sustained by it or the AIMCO Operating Partnership and such other persons
them in connection with your partnership, provided that as the general partner may designate from and against
such loss, damage, liability, cost or expense was not all losses, claims, damages, liabilities, joint or
the result of negligence or misconduct by such party. several, expenses (including legal fees), fines,
However, neither the general partner nor any affiliate settlements and other amounts incurred in connection
will be indemnified for any loss, damage or cost with any actions relating to the operations of the
resulting from the violation of any Federal or state AIMCO Operating Partnership, as set forth in the AIMCO
securities laws in connection with the sale of units Operating Partnership Agreement. The Delaware Limited
and will be liable for such violations unless (i) there Partnership Act provides that subject to the standards
has been a successful adjudication on the merits of and restrictions, if any, set forth in its partnership
each count involving the securities law violations, agreement, a limited partnership may, and shall have
(ii) such claims have been dismissed with prejudice on the power to, indemnify and hold harmless any partner
the merits by a court of competent jurisdiction or other
</TABLE>
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<PAGE> 1557
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
or (iii) a court of competent jurisdiction approves a person from and against any and all claims and demands
settlement of such claims. In such claim for whatsoever. It is the position of the Securities and
indemnification for Federal or state securities law Exchange Commission that indemnification of directors
violation, the party seeking indemnification must place and officers for liabilities arising under the
before the court the position of the SEC and any other Securities Act is against public policy and is
applicable regulatory agency with respect of the issue unenforceable pursuant to Section 14 of the Securities
of indemnification for securities law violations. Any Act of 1933.
such indemnity provided shall be paid, from and only to
the extent of, partnership assets.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general
vote of the limited partners owning a majority of the partner may not be removed as general partner of the
outstanding units. A general partner may withdraw AIMCO Operating Partnership by the OP Unitholders with
voluntarily from your partnership only if there is or without cause. Under the AIMCO Operating Partnership
another general partner or a successor is elected. The Agreement, the general partner may, in its sole
general partner may admit an additional or substitute discretion, prevent a transferee of an OP Unit from
general partner with the consent of limited partners becoming a substituted limited partner pursuant to the
owning more than 50% of the units. A limited partner AIMCO Operating Partnership Agreement. The general
may not transfer his interests without the consent of partner may exercise this right of approval to deter,
the general partner which may be withheld at the sole delay or hamper attempts by persons to acquire a
discretion of the general partner. controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to cure any ambiguity in the AIMCO Operating Partnership Agreement, whereby
or correct or supplement any provision of your the general partner may, without the consent of the OP
partnership's agreement of limited partnership which is Unitholders, amend the AIMCO Operating Partnership
inconsistent with any other provision and to comply Agreement, amendments to the AIMCO Operating
with applicable tax and securities laws. No amend- Partnership Agreement require the consent of the
ments may be made which affect the obligation of the holders of a majority of the outstanding Common OP
limited partners to make their required capital Units, excluding AIMCO and certain other limited
contribution or affect the timing or amount of the fees exclusions (a "Majority in Interest"). Amendments to
paid by your partnership and no amendments may be made the AIMCO Operating Partnership Agreement may be
which adversely the rights of or the share of profits, proposed by the general partner or by holders of a
losses and distributions allocable or distributable to Majority in Interest. Following such proposal, the
a partner without the consent of the affected partner. general partner will submit any proposed amendment to
Other amendments to your partnership's agreement of the OP Unitholders. The general partner will seek the
limited partnership must be approved by the limited written consent of the OP Unitholders on the proposed
partners owning more than 50% of the units and the amendment or will call a meeting to vote thereon. See
general partner. Certain specified provisions of your "Description of OP Units -- Amendment of the AIMCO
partnership's agreement of limited partnership require Operating Partnership Agreement" in the accompanying
the consent of all limited partners. Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives an annual fee of $40,000 beginning in 1990 capacity as general partner of the AIMCO Operating
which increases annually at a rate of 5% beginning in Partnership. In addition, the AIMCO Operating Part-
1991. Moreover, the general partner or certain nership is responsible for all expenses incurred
affiliates may be entitled to compensation for relating to the AIMCO Operating Partnership's ownership
additional services rendered. of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 1558
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, a limited partner is not liable for any negligence, no OP Unitholder has personal liability for
debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and
partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for
payments of his capital contribution when due under the AIMCO Operating Partnership's debts and obligations
your partnership's agreement of limited partnership. is generally limited to the amount of their invest-
ment in the AIMCO Operating Partnership. However, the
limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must diligently and partnership agreement, Delaware law generally requires
faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to
required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes
your partnership and must at all times act in a its limited partners the highest duties of good faith,
fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such
limited partners. The general partner at all times has general partner from taking any action or engaging in
a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of
of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement
partner and its affiliates may engage in or possess an expressly authorizes the general partner to enter into,
interest in other business ventures of every nature and on behalf of the AIMCO Operating Partnership, a right
description, including, without limitation, real estate of first opportunity arrangement and other conflict
business ventures, whether or not such other avoidance agreements with various affiliates of the
enterprises are in competition with any activities of AIMCO Operating Partnership and the general partner, on
your partnership. such terms as the general partner, in its sole and
absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-65
<PAGE> 1559
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding the holders of the Preferred OP respect to certain limited matters
units, the limited partners may Units will have the same voting such as certain amendments and
amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating
of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain
certain exceptions; terminate your Units" in the accompanying transactions such as the
partnership; remove or elect a Prospectus. So long as any institution of bankruptcy
general partner; approve or Preferred OP Units are outstand- proceedings, an assignment for the
disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain
substantially all of the assets of or consent of partners required by transfers by the general partner of
your partnership or the merger or law or by the AIMCO Operating its interest in the AIMCO Operating
other reorganization of Partnership Agree- Part-
</TABLE>
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<PAGE> 1560
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
your partnership; and authorize the ment, the affirmative vote or nership or the admission of a
issuance of other equity interests consent of holders of at least 50% successor general partner.
in your partnership. The consent of of the outstanding Preferred OP
a limited partner will be deemed to Units will be necessary for Under the AIMCO Operating Partner-
be granted if such limited partner effecting any amendment of any of ship Agreement, the general partner
does not, in writing, refuse to the provisions of the Partnership has the power to effect the
consent within thirty days after he Unit Designation of the Preferred acquisition, sale, transfer,
receives notice requesting the OP Units that materially and exchange or other disposition of
consent. adversely affects the rights or any assets of the AIMCO Operating
preferences of the holders of the Partnership (including, but not
A general partner may cause the Preferred OP Units. The creation or limited to, the exercise or grant
dissolution of the your partnership issuance of any class or series of of any conversion, option,
by retiring. Your partnership may partnership units, including, privilege or subscription right or
be continued by a remaining general without limitation, any partner- any other right available in
partner or, if none, the limited ship units that may have rights connection with any assets at any
partners may agree to continue your senior or superior to the Preferred time held by the AIMCO Operating
partnership by electing a successor OP Units, shall not be deemed to Partnership) or the merger,
general partner by unanimous materially adversely affect the consolidation, reorganization or
written consent within 120 days rights or preferences of the other combination of the AIMCO
after the retirement of the general holders of Preferred OP Units. With Operating Partnership with or into
partner. respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
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<PAGE> 1561
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Cash Flow are to $ per Preferred OP Unit; tribute quarterly all, or such
be made at reasonable intervals provided, however, that at any time portion as the general partner may
during the fiscal year as de- and from time to time on or after in its sole and absolute discretion
termined by the general partner, the fifth anniversary of the issue determine, of Available Cash (as
and in any event will be made date of the Preferred OP Units, the defined in the AIMCO Operating
within 60 days after the close of AIMCO Operating Partnership may Partnership Agreement) generated by
each fiscal year. The distributions adjust the annual distribution rate the AIMCO Operating Partnership
payable to the partners are not on the Preferred OP Units to the during such quarter to the general
fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited
operating results and net sales or interest rate then applicable to partner and the holders of Common
refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date
the disposition of your of five years, and (ii) the annual established by the general partner
partnership's assets. Your dividend rate on the most recently with respect to such quarter, in
partnership has made distributions issued AIMCO non-convertible accordance with their respective
in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating
make distributions in 1998. parity with its Class H Cumu- Partnership on such record date.
lative Preferred Stock. Such Holders of any other Preferred OP
distributions will be cumulative Units issued in the future may have
from the date of original issue. priority over the general partner,
Holders of Preferred OP Units will the special limited partner and
not be entitled to receive any holders of Common OP Units with
distributions in excess of respect to distributions of
cumulative distributions on the Available Cash, distributions upon
Preferred OP Units. No interest, or liquidation or other distributions.
sum of money in lieu of interest, See "Per Share and Per Unit Data"
shall be payable in respect of any in the accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part-
minor or incom- Preferred OP
</TABLE>
S-68
<PAGE> 1562
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
petent, except in limited Units are not listed on any nership Agreement restricts the
situations, and such person may be securities exchange. The Preferred transferability of the OP Units.
substituted as a limited partner OP Units are subject to Until the expiration of one year
provided that: (1) the transfer restrictions on transfer as set from the date on which an OP
complies with the then-applicable forth in the AIMCO Operating Unitholder acquired OP Units,
rules and regulations of any Partnership Agreement. subject to certain exceptions, such
governmental authority with OP Unitholder may not transfer all
jurisdiction over the dispo- Pursuant to the AIMCO Operating or any portion of its OP Units to
sition, (2) except in specified Partnership Agreement, until the any transferee without the consent
circumstances, the interest expiration of one year from the of the general partner, which
transferred is not less than 1/2 date on which a holder of Preferred consent may be withheld in its sole
unit, (3) the transfer, when added OP Units acquired Preferred OP and absolute discretion. After the
to all other assignments taking Units, subject to certain expiration of one year, such OP
place in the preceding 12 month exceptions, such holder of Unitholder has the right to
does not result in termination of Preferred OP Units may not transfer transfer all or any portion of its
the partnership for tax purposes, all or any portion of its Pre- OP Units to any person, subject to
(4) the approval of the general ferred OP Units to any transferee the satisfaction of certain
partner which may be withheld in without the consent of the general conditions specified in the AIMCO
the sole and absolute discretion of partner, which consent may be Operating Partnership Agreement,
the general partner has been withheld in its sole and absolute including the general partner's
granted and (5) the assignor and discretion. After the expiration of right of first refusal. See
assignee have complied with such one year, such holders of Preferred "Description of OP Units --
other conditions as are set forth OP Units has the right to transfer Transfers and Withdrawals" in the
in your partnership's agreement of all or any portion of its Preferred accompanying Prospectus.
limited partnership. OP Units to any person, subject to
There are no redemption rights the satisfaction of certain After the first anniversary of
associated with your units. conditions specified in the AIMCO becoming a holder of Common OP
Operating Partnership Agreement, Units, an OP Unitholder has the
including the general partner's right, subject to the terms and
right of first refusal. conditions of the AIMCO Operating
Partnership Agreement, to require
After a one-year holding period, a the AIMCO Operating Partnership to
holder may redeem Preferred OP redeem all or a portion of the
Units and receive in exchange Common OP Units held by such party
therefor, at the AIMCO Operating in exchange for a cash amount based
Partnership's option, (i) subject on the value of shares of Class A
to the terms of any Senior Units, Common Stock. See "Description of
cash in an amount equal to the OP Units -- Redemption Rights" in
Liquidation Preference of the the accompanying Prospectus. Upon
Preferred OP Units tendered for receipt of a notice of redemption,
redemption, (ii) a number of shares the general partner may, in its
of Class I Cumulative Preferred sole and absolute discretion but
Stock of AIMCO that pay an subject to the restrictions on the
aggregate amount of dividends yield ownership of Class A Common Stock
equivalent to the distributions on imposed under the AIMCO's charter
the Preferred OP Units tendered for and the transfer restrictions and
redemption and are part of a class other limitations thereof, elect to
or series of preferred stock that cause AIMCO to acquire some or all
is then listed on the New York of the tendered Common OP Units in
Stock Exchange or another national exchange for Class A Common Stock,
securities exchange, or (iii) a based on an exchange ratio of one
number of shares of Class A Common share of Class A Common Stock for
Stock of AIMCO that is equal in each Common OP Unit, subject to
Value to the Liquidation Preference adjustment as provided in the AIMCO
of the Preferred OP Units tendered Operating Partnership Agreement.
for redemption. The Preferred OP
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-69
<PAGE> 1563
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual fee of $40,000 beginning in 1990 and increasing annually at a rate of 5%
beginning in 1991 and you may receive reimbursement for expenses generated in
that capacity from your partnership. The property manager received management
fees of $195,660 in 1996, $209,666 in 1997 and $107,798 for the first six months
of 1998. The AIMCO Operating Partnership has no current intention of changing
the fee structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-70
<PAGE> 1564
YOUR PARTNERSHIP
GENERAL
La Colina Partners, Ltd. is a Delaware limited partnership which raised net
proceeds of approximately $20,600,000 in 1990 through a private offering. The
promoter for the private offering of your partnership was Winthrop Securities
Co., Inc. Insignia acquired your partnership in November 1997. AIMCO acquired
Insignia in October, 1998. There are currently a total of 185 limited partners
of your partnership and a total of 206 units of your partnership outstanding.
Your partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the small number of apartment
properties described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on May 2, 1990 for the purpose of owning and
operating a small number of apartment properties located in Irving, Texas,
Arlington, Texas and Euless, Texas, known as "Heather Ridge Apartments," "Oak
Forest Apartments" and "Hillcrest Apartments," respectively. There are 204
apartment units in "Heather Ridge Apartments" consisting of 70 one-bedroom
apartments and 134 two-bedroom apartments. The total rentable square footage is
169,718 square feet and the average annual rent per apartment unit is $6,616.
"Hillcrest Apartments" has 298 apartment units. There are 48 studios, 160 one-
bedroom apartments and 90 two-bedroom apartments. The total rentable square
footage is 204,644 square feet. The average annual rent per apartment unit is
$5,160. In "Oak Forest Apartments," there are 204 apartment units. The total
rentable square footage is 155,104 square feet and the average annual rent per
apartment unit is $5,746.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since November 1997, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $195,660, $209,666 and $107,798, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2040
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
S-71
<PAGE> 1565
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had current mortgage notes
outstanding on "Heather Ridge Apartments" of $3,744,013, on "Hillcrest
Apartments" of $3,775,476 and on "Oak Forest Apartments" of $2,898,497. All
three mortgage notes are payable to AMI Capital, bear interest at a rate of
7.53% and are due May 2003. Your partnership's agreement of limited partnership
also allows the general partner of your partnership to lend funds to your
partnership. Currently, the general partner of your partnership has a loan
outstanding to your partnership of $ , bearing interest at a rate of %,
due .
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-72
<PAGE> 1566
Below is selected financial information for DFW Apartment Investors Limited
Partnership taken from the financial statements described above. See "Index to
Financial Statements."
<TABLE>
<CAPTION>
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
---------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
----------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents....... $ 1,062,097 $ Not $ 722,786 $ 660,161 $ 1,748,923 $ 1,632,642 $ 1,765,862
Land & Building................. 17,853,009 Available 17,789,741 17,528,829 17,168,394 16,711,223 16,444,133
Accumulated Depreciation........ (4,509,799) 0 (4,140,924) (3,403,133) (2,731,698) (2,127,285) (1,561,615)
Other Assets.................... 2,064,397 0 2,342,085 2,413,354 1,214,226 1,242,367 1,300,461
----------- --------- ----------- ----------- ----------- ----------- -----------
Total Assets........... $25,489,302 $ 0 $16,713,688 $17,199,211 $17,399,845 $17,458,947 $17,948,841
=========== ========= =========== =========== =========== =========== ===========
Mortgage & Accrued Interest..... 10,494,293 10,579,050 10,671,464 0 0 0
Other Liabilities............... 401,876 621,968 588,655 572,457 526,900 575,392
----------- --------- ----------- ----------- ----------- ----------- -----------
Total Liabilities...... $10,896,169 $ 0 $11,201,018 $11,260,119 $ 572,457 $ 526,900 $ 575,392
----------- --------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)...... $ 5,573,534 $ 0 $ 5,512,670 $ 5,939,092 $16,827,388 $16,932,047 $17,373,449
=========== ========= =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
----------------------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
----------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue............................ $2,088,959 $ $4,153,239 $3,840,047 $3,580,689 $3,473,045 $3,266,463
Other Income.............................. 74,862 107,783 170,560 205,027 160,946 195,204
---------- -- ---------- ---------- ---------- ---------- ----------
Total Revenue.................... $2,163,821 $0 $4,261,022 $4,010,607 $3,785,716 $3,633,991 $3,461,667
---------- -- ---------- ---------- ---------- ---------- ----------
Operating Expenses........................ 884,161 0 1,884,244 1,801,266 1,659,844 1,648,384 1,506,569
General & Administrative.................. 129,773 207,442 239,123 232,732 214,488 245,289
Depreciation.............................. 368,896 737,791 671,435 604,413 565,670 503,494
Interest Expense.......................... 428,175 797,112 569,437 0 0 0
Property Taxes............................ 291,952 510,741 457,592 442,293 355,873 348,616
---------- -- ---------- ---------- ---------- ---------- ----------
Total Expenses................... $2,102,957 $0 $4,137,330 $3,738,853 $2,939,282 $2,784,415 $2,603,968
---------- -- ---------- ---------- ---------- ---------- ----------
Net Income................................ $ 60,864 $0 $ 123,692 $ 271,754 $ 846,434 $ 849,576 $ 857,699
========== == ========== ========== ========== ========== ==========
</TABLE>
S-73
<PAGE> 1567
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein. Due to this
partnership being a recent acquisition, very little discussion is available for
variances.
Results of Operations
Six Months Ended June 30, 1998
Due to this partnership being a recent acquisition no data is available for
the six months ended June 30, 1997.
Net Income
Your partnership recognized net income of $60,864 for the six months ended
June 30, 1998.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,163,821 for the six months ended June 30, 1998.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $884,161 for the
six months ended June 30, 1998. Management expenses totaled $107,798 for the six
months ended June 30, 1998.
General and Administrative Expenses
General and administrative expenses totaled $129,773 for the six months
ended June 30, 1998.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $428,175 for the six months ended June 30, 1998.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $123,692 for the year ended
December 31, 1997, compared to $271,754 for the year ended December 31, 1996.
The decrease in net income of $148,062, or 54.48% was primarily the result of
increased expenses over increased revenues. These factors are discussed in more
detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$4,261,022 for the year ended December 31, 1997, compared to $4,010,607 for the
year ended December 31, 1996, an increase of $250,415, or 6.24%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,884,244 for
the year ended December 31, 1997, compared to $1,801,266 for the year ended
December 31,
S-74
<PAGE> 1568
1996, an increase of $82,978 or 4.61%. Management expenses totaled $209,666
for the year ended December 31, 1997, compared to $195,660 for the year ended
December 31, 1996, an increase of $14,006, or 7.16%. The increase resulted from
increased revenues, as management fees are calculated based on a percentage of
revenues.
General and Administrative Expenses
General and administrative expenses totaled $207,442 for the year ended
December 31, 1997 compared to $239,123 for the year ended December 31, 1996, a
decrease of $31,681 or 13.25%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $797,112 for the year ended December 31, 1997, compared to
$569,437 for the year ended December 31, 1996, an increase of $227,675, or
39.98%. The increase is the result of only a partial year of mortgage payments
being made in 1996 as the mortgage was not obtained until April of that year.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $271,754 for the year ended
December 31, 1996, compared to $846,434 for the year ended December 31, 1995.
The decrease in net income of $574,680, or 67.89% was primarily the result of
increased expenses over the increase in revenues. These factors are discussed in
more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$4,010,607 for the year ended December 31, 1996, compared to $3,785,716 for the
year ended December 31, 1995, an increase of $224,891, or 5.94%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,801,266 for
the year ended December 31, 1996, compared to $1,659,844 for the year ended
December 31, 1995, an increase of $141,422 or 8.52%. Management expenses totaled
$195,660 for the year ended December 31, 1996, compared to $186,505 for the year
ended December 31, 1995, an increase of $9,155, or 4.91%.
General and Administrative Expenses
General and administrative expenses totaled $239,123 for the year ended
December 31, 1996 compared to $232,732 for the year ended December 31, 1995, an
increase of $6,391 or 2.75%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $569,437 for the year ended December 31, 1996, compared to $0 for
the year ended December 31, 1995, an increase of $569,437, or 100%. The increase
is due to the partnership obtaining three mortgage loans for a total of
approximately $10.7 million in April of 1996.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $1,062,097 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on
S-75
<PAGE> 1569
outstanding debt, capital improvements, and distributions paid to limited
partners. Your partnership has adequate sources of cash to finance its
operations, both on a short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership and
its affiliates are not liable, responsible or accountable for damages or
otherwise to your partnership or any limited partner for any acts performed or
any failure to act by any of them if they determined, in good faith, that such
acts or failure to act was in the best interests of your partnership, and such
course of conduct did not constitute negligence or misconduct on the part of
such party. As a result, unitholders might have a more limited right of action
in certain circumstances than they would have in the absence of such a provision
in your partnership's agreement of limited partnership. The general partner of
your partnership is owned by AIMCO. See "Conflicts of Interest".
The general partner and its affiliates are entitled to indemnification by
your partnership against any loss, damage, liability, cost or expense sustained
by it or them in connection with your partnership, provided that such loss,
damage, liability, cost or expense was not the result of negligence or
misconduct by such party. However, neither the general partner nor any affiliate
will be indemnified for any loss, damage or cost resulting from the violation of
any Federal or state securities laws in connection with the sale of units and
will be liable for such violations unless (i) there has been a successful
adjudication on the merits of each count involving the securities law
violations, (ii) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction or (iii) or court of competent jurisdiction
approves a settlement of such claims. In such claim for indemnification for
Federal or state securities law violation, the party seeking indemnification
must place before the court the position of the SEC and any other applicable
regulatory agency with respect of the issue of indemnification for securities
law violations. Any such indemnity provided shall be paid, from and only to the
extent of, partnership assets. As part of its assumption of liabilities in the
consolidation, AIMCO will indemnify the general partner of your partnership and
their affiliates for periods prior to and following the consolidation to the
extent of the indemnity under the terms of your partnership's agreement of
limited partnership and applicable law.
No partnership funds will be used to purchase any insurance that insures
any party against any liability for which indemnification is not available
pursuant to your partnership's agreement of limited partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter. The
original cost per unit was $103,000.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 6,200
1995........................................................ 4,575
1996........................................................ 53,675
1997........................................................ 2,600
1998 (through June 30)...................................... 0
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in
S-76
<PAGE> 1570
order to track compliance with safe harbor provisions to avoid treatment as
a "publicly traded partnership" for tax purposes. However, the general partner
of your partnership does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in the
units have been effectuated. The general partner of your partnership estimates,
based solely on the transfer records of your partnership (or your partnership's
transfer agent), that there have been no units transferred in sale transactions
(excluding transactions believed to be between related parties, family members
or the same beneficial owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
AIMCO currently owns a 13.35% limited partnership interest in your
partnership. Except as described above, Neither AIMCO, nor, to the best of its
knowledge, any of its affiliates, (i) beneficially own or have a right to
acquire any units, (ii) have effected any transaction in the units, or (iii)
have any contract, arrangement, understanding or relationship with any other
person with respect to any securities of your partnership, including, but not
limited to, contracts, arrangements, understandings or relationships concerning
transfer or voting thereof, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $48,620
1995........................................................ 51,051
1996........................................................ 54,114
1997........................................................ 28,985
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... 186,505
1996........................................... 195,660
1997........................................... 209,666
1998 (through June 30)......................... 107,798
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-77
<PAGE> 1571
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of DFW Apartment Investors Limited Partnership at
December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this
Prospectus Supplement have been audited by Reznick Fedder & Silverman,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
S-78
<PAGE> 1572
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statement of Income for the six months ended June
30, 1998 (unaudited)...................................... F-3
Condensed Statement of Cash Flows for the six months ended
June 30, 1998 (unaudited)................................. F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-8
Balance Sheets as of December 31, 1997 and 1996............. F-9
Statements of Income for the years ended December 31, 1997
and 1996.................................................. F-10
Statements of Partners' Capital for the years ended December
31, 1997 and 1996......................................... F-11
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-12
Notes to Financial Statements............................... F-13
Independent Auditors' Report................................ F-18
Balance Sheets as of December 31, 1996 and 1995............. F-19
Statements of Income for the years ended December 31, 1996
and 1995.................................................. F-20
Statements of Partners' Capital for the years ended December
31, 1996 and 1995......................................... F-21
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-22
Notes to Financial Statements............................... F-23
</TABLE>
F-1
<PAGE> 1573
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET (UNAUDITED)
INCOME TAX BASIS
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 1,062,097
Receivables and Deposits.................................... 29,858
Restricted Escrows.......................................... 494,578
Other Assets................................................ 1,539,961
Investment Property:
Land...................................................... 2,797,475
Building and related personal property.................... 15,055,534
-----------
17,853,009
Less: Accumulated depreciation............................ (4,509,800) 13,343,209
----------- -----------
Total Assets...................................... $16,469,703
===========
LIABILITIES AND PARTNERS' CAPITAL
Other Accrued Liabilities................................... $ 401,876
Notes Payable............................................... 10,494,293
Partners' Capital........................................... 5,573,534
-----------
Total Liabilities and Partners' Capital..................... $16,469,703
===========
</TABLE>
F-2
<PAGE> 1574
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
CONDENSED STATEMENT OF INCOME (UNAUDITED)
INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Revenues:
Rental Income............................................. $2,088,959
Other Income.............................................. 74,862
----------
Total Revenues.................................... 2,163,821
Expenses:
Operating Expenses........................................ 884,161
General and Administrative Expenses....................... 129,773
Depreciation Expense...................................... 368,896
Interest Expense.......................................... 428,175
Property Tax Expense...................................... 291,952
----------
Total Expenses.................................... 2,102,957
Net Income (Loss)........................................... $ 60,864
==========
</TABLE>
F-3
<PAGE> 1575
DFW APARTMENT
INVESTORS LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Operating Activities:
Net Income (loss)......................................... $ 60,864
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization............................. 368,896
Receivables and deposits and other assets.............. 383,285
Accounts Payable and accrued expenses.................. (220,092)
----------
Net cash provided by (used in) operating
activities........................................ 592,953
----------
Investing Activities
Property improvements and replacements.................... (63,288)
Net (increase)/decrease in restricted escrows............. (105,597)
----------
Net cash provided by (used in) investing
activities........................................ (168,885)
----------
Financing Activities
Payments on mortgage...................................... (84,757)
----------
Net cash provided by (used in) financing
activities........................................ (84,757)
----------
Net increase (decrease) in cash and cash equivalents...... 339,311
Cash and cash equivalents at beginning of year............ 722,786
----------
Cash and cash equivalents at end of period................ $1,062,097
==========
</TABLE>
F-4
<PAGE> 1576
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of DFW Apartment Investors
Limited Partnership as of June 30, 1998 and for the six months then ended have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 1577
DFW APARTMENT INVESTORS
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997 AND 1996
F-6
<PAGE> 1578
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-8
Financial Statements
Balance Sheets............................................ F-9
Statements of Income...................................... F-10
Statements of Partners' Capital........................... F-11
Statements of Cash Flows.................................. F-12
Notes to Financial Statements............................. F-13
</TABLE>
F-7
<PAGE> 1579
INDEPENDENT AUDITORS' REPORT
To the Partners
DFW Apartment Investors Limited Partnership
We have audited the accompanying balance sheets of DFW Apartment Investors
Limited Partnership as of December 31, 1997, and 1996, and the related
statements of income, partners' capital and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DFW Apartment Investors
Limited Partnership as of December 31, 1997, and 1996, and the results of its
operations, changes in partners' capital and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
February 12, 1998
F-8
<PAGE> 1580
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment in real estate
Land...................................................... $ 2,797,475 $ 2,797,475
Buildings and improvements, net of accumulated
depreciation of $4,140,924 and $3,403,133.............. 10,851,342 11,328,221
----------- -----------
13,648,817 14,125,696
Other assets
Cash and cash equivalents................................. 647,420 591,568
Accounts receivable....................................... 112,360 89,927
Tenant security deposits -- funded........................ 75,366 68,953
Mortgage escrow deposits.................................. 532,530 399,027
Replacement reserves...................................... 388,981 368,782
Prepaid expenses.......................................... -- 132,579
Deferred costs, net of accumulated amortization of
$749,134 and $634,669.................................. 1,277,244 1,391,709
Deposits.................................................. 30,970 30,970
----------- -----------
Total assets...................................... $16,713,688 $17,199,211
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities applicable to investment in real estate
Mortgages payable......................................... $10,513,080 $10,671,464
Other liabilities
Accounts payable and accrued expenses..................... 148,272 105,589
Accrued real estate taxes................................. 418,498 418,258
Accrued interest -- mortgages............................. 65,970 --
Tenant security deposits liability........................ 55,198 64,808
----------- -----------
Total liabilities................................. 11,201,018 11,260,119
----------- -----------
Partners' capital
Investor limited partners................................. 6,033,566 6,446,711
General partner........................................... (520,896) (507,619)
----------- -----------
5,512,670 5,939,092
----------- -----------
Total liabilities and partners' capital........... $16,713,688 $17,199,211
=========== ===========
</TABLE>
See notes to financial statements
F-9
<PAGE> 1581
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenue
Rental, net of vacancies.................................. $4,153,239 $3,840,047
Interest.................................................. 32,743 59,166
Other..................................................... 75,040 111,394
---------- ----------
4,261,022 4,010,607
---------- ----------
Operating expenses
Leasing................................................... 298,727 148,797
General and administrative................................ 207,442 239,123
Management fees........................................... 209,666 195,660
Utilities................................................. 342,531 363,115
Repairs and maintenance................................... 475,238 511,763
Janitorial................................................ 48,079 38,864
Painting and decorating................................... 133,533 108,434
Insurance................................................. 125,181 145,341
Taxes..................................................... 510,741 457,592
---------- ----------
Total operating expenses.......................... 2,351,138 2,208,689
---------- ----------
Other expenses
Mortgage interest expense................................. 797,112 569,437
Partnership expenses...................................... 136,824 203,469
Depreciation.............................................. 737,791 671,435
Amortization.............................................. 114,465 85,823
---------- ----------
Total expenses.................................... 4,137,330 3,738,853
---------- ----------
Net Income........................................ $ 123,692 $ 271,754
========== ==========
Net income allocated to general partner..................... $ 1,237 $ 2,718
========== ==========
Net income allocated to investor limited partners........... $ 122,455 $ 269,036
========== ==========
Net income per unit outstanding -- L.P...................... $ 594 $ 1,306
========== ==========
</TABLE>
See notes to financial statements
F-10
<PAGE> 1582
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
INVESTOR TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS CAPITAL
--------- ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1995......................... $(407,337) $ 17,234,725 $ 16,827,388
Distributions to partners.......................... (103,000) (11,057,050) (11,160,050)
Net income......................................... 2,718 269,036 271,754
--------- ------------ ------------
Balance, December 31, 1996......................... (507,619) 6,446,711 5,939,092
Distributions to partners.......................... (14,514) (535,600) (550,114)
Net income......................................... 1,237 122,455 123,692
--------- ------------ ------------
Balance, December 31, 1997......................... $(520,896) $ 6,033,566 $ 5,512,670
========= ============ ============
</TABLE>
See notes to financial statements
F-11
<PAGE> 1583
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 123,692 $ 271,754
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation........................................... 737,791 671,435
Amortization........................................... 114,465 85,823
Changes in assets and liabilities
Increase in accounts receivable...................... (22,433) (87,800)
Decrease (increase) in prepaid expenses.............. 132,579 (12,274)
Increase (decrease) in accounts payable and accrued
expenses............................................ 33,287 (11,925)
Increase in accrued real estate taxes................ 240 31,026
Increase in accrued interest -- mortgages............ 75,366 --
Decrease in security deposits -- net................. (16,023) (2,903)
Increase in mortgage escrow deposits................. (133,503) (399,027)
---------- ------------
Net cash provided by operating activities......... 1,045,461 546,109
---------- ------------
Cash flows from investing activities
Investment in real estate................................. (260,912) (360,435)
Increase in replacement reserves.......................... (20,199) (368,782)
---------- ------------
Net cash used in investing activities............. (281,111) (729,217)
---------- ------------
Cash flows from financing activities
Distributions to partners................................. (550,114) (11,160,050)
Proceeds from mortgages................................... -- 10,757,500
Principal payments on mortgages........................... (158,384) (86,036)
Increase in deferred costs................................ -- (485,661)
---------- ------------
Net cash used in financing activities............. (708,498) (974,247)
---------- ------------
Net increase (decrease) in cash and cash
equivalents.................................... 55,852 (1,157,355)
Cash and cash equivalents, beginning........................ 591,568 1,748,923
---------- ------------
Cash and cash equivalents, end.............................. $ 647,420 $ 591,568
========== ============
Supplemental disclosure of cash flow information
Cash paid during year for interest........................ $ 721,746 $ 569,437
========== ============
</TABLE>
See notes to financial statements
F-12
<PAGE> 1584
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DFW Apartment Investors Limited Partnership (the "Partnership") was formed
April 25, 1990 under the laws of the State of Delaware for the purposes of
acquiring, renovating, operating and otherwise dealing with certain residential
apartments located in the Dallas/Fort Worth, Texas metropolitan area. The
Partnership will terminate on December 31, 2040, or earlier upon the occurrence
of certain events specified in the Partnership Agreement.
The general partner of the Partnership is Winthrop Financial Associates, a
Maryland Limited Partnership ("WFA"). WFC Realty Co., Inc., a Massachusetts
Corporation ("WFC Realty"), a wholly-owned subsidiary of WFA, was the initial
limited partner of the Partnership and withdrew as limited partner upon the
first admission of investors. The Partnership sold 206 limited partnership units
at $100,000 per unit.
In accordance with the Partnership Agreement, losses and cash flow shall be
allocated 99% to investor limited partners and 1% to WFA; income shall be
allocated to the partners in proportion to the cash available for distribution
distributable to the partners. If there is no such cash available for
distribution, income will be allocated 95% to limited partners and 5% to WFA.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Accounting
The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles.
Rental Property
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by use of the straight-line method for financial
reporting purposes. For income tax purposes, accelerated lives and methods are
used.
Deferred Costs
Deferred costs are amortized using the straight-line method over the term
of the related agreement.
Income Taxes
No provision will be made for federal, state or local income taxes in the
financial statements of the Partnership. Partners will be required to report on
their tax returns their allocable shares of income, gains, losses, deductions
and credits of the Partnership.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership and
tenants of the Properties are operating leases.
F-13
<PAGE> 1585
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
highly liquid investments consisting of a money market fund to be cash
equivalents.
NOTE B -- ACQUISITION OF THE PROPERTIES
The Partnership acquired three separate residential apartment complexes
(the "Properties") in 1990 for an aggregate purchase price of $14,013,732. The
purchase represents an aggregate of 707 market-rate rental apartments in the
Dallas, Texas area.
On June 8, 1990, the Partnership acquired Heather Ridge Apartments for
$5,104,350. On August 16, 1990 and September 19, 1990, the Partnership acquired
Oak Forest Apartments and Summit on Post Oak Apartments for $4,409,382 and
$4,500,000, respectively. The purchases were financed by a loan from Citibank,
N.A. and an advance from WFA.
NOTE C -- MORTGAGES PAYABLE
On April 15, 1996, the Partnership obtained three mortgage loans by the
same lender in the aggregate amount of $10,757,500 which are collateralized by
deeds of trust on the three rental properties. The notes bear interest at a rate
of 7.53%. Principal and interest are payable by the Partnership in monthly
installments of $79,707. A balloon payment of approximately $9,492,902 and the
accrued interest is payable in full on May 1, 2003.
Under agreements with the mortgage lender, the Partnership is required to
make monthly escrow deposits for taxes and insurance.
The liability of the Partnership under the mortgage notes are limited to
the underlying value of the real estate collateral plus other amounts deposited
with the lender.
Aggregate annual maturities of the mortgages payable over each of the next
five years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1998................................... $170,739
1999................................... 184,049
2000................................... 198,396
2001................................... 213,862
2002................................... 230,533
</TABLE>
NOTE D -- MORTGAGE RESERVES HELD IN ESCROW
The Partnership has set up various reserve escrows with the mortgage lender
in connection with the mortgage loan.
The replacement reserve in the amount of $388,981 and $368,782 at December
31, 1997 and 1996, respectively, secures the Partnership's agreement to
undertake certain improvements to the property over the life of the mortgage
loan. The amount of this Reserve will be reduced as improvements are completed.
An escrow for taxes and insurance has been set up under the mortgage
agreement. All taxes and insurance will be paid by the mortgage lender out of
these escrow accounts. The amounts held in escrow for insurance and taxes at
December 31, 1997 and 1996 is $532,530 and $399,027, respectively.
The mortgage lender has the right to draw upon these escrows in the event
that the Partnership defaults in the performance of its obligations under the
mortgage loan, including its obligations to pay principal and
F-14
<PAGE> 1586
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
interest. The reserve shall be invested in interest bearing instruments.
Interest earned during 1997 and 1996 amounted to $4,870 and $4,912,
respectively.
NOTE E -- RELATED PARTY TRANSACTIONS
The Partnership has incurred charges and commitments to affiliates of its
general partner. Related party transactions include the following:
(a) The Partnership paid to an affiliate of the general partner,
Winthrop Management, an annual property management fee equal to 5% of gross
operating revenues for the properties through October 27, 1997. Fees of
$172,882 and $195,660 were charged to operations for the years ended
December 31, 1997 and 1996, respectively.
(b) On October 28, 1997, the Partnership terminated Winthrop
Management as the managing agent, and appointed Insignia Residential Group
of Texas, Inc. ("Insignia") as the new management agent (see Note G to the
financial statements). The management agreement provides for a management
fee equal to 5% of gross operating revenues for the properties. Fees of
$36,784 were charged to operations for the year ended December 31, 1997.
(c) Effective October 28, 1997, the Partnership charged operations for
asset management fees and costs reimbursements payable to an affiliate of
Insignia. Fees and reimbursements of $10,038 and $8,776, respectively, are
included in partnership expenses for the year ended December 31, 1997. At
December 31, 1997, $18,114 remains payable.
The Partnership paid to WFA an annual administration and investor service
fee of $40,000. This fee was to increase 5% annually from 1991 to 1995, and
commencing in 1996 the fee was to increase 6% annually. Fees of $28,925 and
$54,114 are included in partnership expenses during the years ended December 31,
1997 and 1996, respectively.
NOTE F -- CONCENTRATION OF CREDIT RISK
At December 31, 1997, the Partnership has cash in the amount of $921,511
held by the mortgage lender. The account is insured by the Federal Deposit
Insurance Corporation up to $100,000 an account. The uninsured portion of this
balance at December 31, 1997 is $336,734.
NOTE G -- OTHER INFORMATION
On October 28, 1997, Insignia Financial Group acquired 100% of the Class B
stock of First Winthrop Corporation, an affiliate of the general partner (WPLP).
F-15
<PAGE> 1587
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
[WINTHROP LOGO]
F-16
<PAGE> 1588
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-18
Financial Statements
Balance Sheets............................................ F-19
Statements of Income...................................... F-20
Statements of Partners' Capital........................... F-21
Statements of Cash Flows.................................. F-22
Notes to Financial Statements............................. F-23
</TABLE>
F-17
<PAGE> 1589
INDEPENDENT AUDITORS' REPORT
To the Partners
DFW Apartment Investors Limited Partnership
We have audited the accompanying balance sheets of DFW Apartment Investors
Limited Partnership as of December 31, 1996, and 1995, and the related
statements of income, partners' capital and cash flows for the years then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DFW Apartment Investors
Limited Partnership as of December 31, 1996, and 1995, and the results of its
operations, changes in partners' capital and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
February 7, 1997
F-18
<PAGE> 1590
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Investment in real estate
Land...................................................... $ 2,797,475 $ 2,797,475
Building and improvements, net of accumulated depreciation
of $3,403,133 and $2,731,698........................... 11,328,221 11,639,221
----------- -----------
14,125,696 14,436,696
Other assets
Cash and cash equivalents................................. 591,568 1,748,923
Accounts receivable and security deposits................. 158,880 71,080
Mortgage escrow deposits.................................. 399,027 --
Replacement reserves...................................... 368,782 --
Prepaid and other assets.................................. 163,549 151,275
Deferred costs, net of accumulated amortization of
$634,669 and $548,846.................................. 1,391,709 991,871
----------- -----------
Total assets...................................... $17,199,211 $17,399,845
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities applicable to investment in real estate
Mortgages payable......................................... $10,671,464 $ --
Other liabilities
Accounts payable and accrued expenses..................... 41,495 59,222
Accrued real estate taxes................................. 418,258 387,232
Accrued expenses and other liabilities.................... 64,094 58,292
Tenant security deposits.................................. 64,808 67,711
----------- -----------
Total liabilities................................. 11,260,119 572,457
----------- -----------
Partners' capital
Investor limited partners................................. 6,446,711 17,234,725
General partner........................................... (507,619) (407,337)
----------- -----------
5,939,092 16,827,388
----------- -----------
Total liabilities and partners' capital........... $17,199,211 $17,399,845
=========== ===========
</TABLE>
See notes to financial statements
F-19
<PAGE> 1591
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue
Rental.................................................... $3,840,047 3,580,689
Interest.................................................. 59,166 86,143
Other..................................................... 111,394 118,884
---------- ----------
4,010,607 3,785,716
---------- ----------
Operating expenses
Leasing................................................... 148,797 132,193
General and administrative................................ 239,123 232,732
Management fees........................................... 249,774 237,556
Utilities................................................. 363,115 361,510
Repairs and maintenance................................... 511,763 488,019
Janitorial................................................ 38,864 51,985
Painting and decorating................................... 108,434 106,450
Insurance................................................. 145,341 173,868
Taxes..................................................... 457,592 442,293
---------- ----------
Total operating expenses.......................... 2,262,803 2,226,606
---------- ----------
Other expenses
Mortgage interest expense................................. 569,437 --
Partnership expenses...................................... 149,355 61,915
Depreciation.............................................. 671,435 604,413
Amortization.............................................. 85,823 46,348
---------- ----------
Total expenses.................................... 3,738,853 2,939,282
---------- ----------
Net Income........................................ $ 271,754 $ 846,434
========== ==========
Net income allocated to general partner..................... $ 2,718 $ 8,464
========== ==========
Net income allocated to investor limited partners........... $ 269,036 $ 837,970
========== ==========
</TABLE>
See notes to financial statements
F-20
<PAGE> 1592
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
INVESTOR
GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
DEFICIT CAPITAL CAPITAL
--------- ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1994........................... $(407,158) $ 17,339,205 $ 16,932,047
Distributions........................................ (8,643) (942,450) (951,093)
Net income........................................... 8,464 837,970 846,434
--------- ------------ ------------
Balance, December 31, 1995........................... (407,337) 17,234,725 16,827,388
Distributions........................................ (103,000) (11,057,050) (11,160,050)
Net income........................................... 2,718 269,036 271,754
--------- ------------ ------------
Balance, December 31, 1996........................... $(507,619) $ 6,446,711 $ 5,939,092
========= ============ ============
</TABLE>
F-21
<PAGE> 1593
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 271,754 $ 846,434
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation........................................... 671,435 604,413
Amortization........................................... 85,823 46,348
Changes in assets and liabilities
(Increase) decrease in accounts receivable........... (87,800) 106,826
Increase in prepaid and other assets................. (12,274) (125,033)
(Decrease) increase in accounts payable.............. (17,727) 1,078
Increase in accrued real estate taxes................ 31,026 64,343
Decrease in security deposits........................ (2,903) (16,540)
Increase (decrease) in accrued expenses and other
liabilities......................................... 5,802 (3,324)
Increase in mortgage escrow deposits................. (399,027) --
------------ ----------
Net cash provided by operating activities......... 546,109 1,524,545
------------ ----------
Cash flows from investing activities
Purchase of building improvements and personal property... (360,435) (457,171)
Increase in replacement reserves.......................... (368,782) --
------------ ----------
Net cash used in investing activities............. (729,217) (457,171)
------------ ----------
Cash flows from financing activities
Distributions............................................. (11,160,050) (951,093)
Proceeds from mortgages................................... 10,757,500 --
Principal payments on mortgages........................... (86,036) --
Increase in deferred costs................................ (485,661) --
------------ ----------
Net cash used in financing activities............. (974,247) (951,093)
------------ ----------
Net increase (decrease) in cash and cash
equivalents..................................... (1,157,355) 116,281
Cash and cash equivalents, beginning........................ 1,748,923 1,632,642
------------ ----------
Cash and cash equivalents, end.............................. $ 591,568 $1,748,923
============ ==========
Supplemental disclosure of cash flow information
Cash paid during year for interest........................ $ 569,437 $ --
============ ==========
</TABLE>
See notes to financial statements
F-22
<PAGE> 1594
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DFW Apartment Investors Limited Partnership (the "Partnership") was formed
April 25, 1990 under the laws of the State of Delaware for the purposes of
acquiring, renovating, operating and otherwise dealing with certain residential
apartments located in the Dallas/Fort Worth, Texas metropolitan area. The
Partnership will terminate on December 31, 2040, or earlier upon the occurrence
of certain events specified in the Partnership Agreement.
The general partner of the Partnership is Winthrop Financial Associates, a
Maryland limited partnership ("WFA"). WFC Realty Co., Inc., a Massachusetts
corporation ("WFC Realty"), a wholly-owned subsidiary of WFA, was the initial
limited partner of the partnership and withdrew as limited partner upon the
first admission of investors. The partnership sold 206 limited partnership units
at $100,000 per unit.
In accordance with the Partnership Agreement, losses and cash flow shall be
allocated 99% to investor limited partners and 1% to WFA; income shall be
allocated to the partners in proportion to the cash available for distribution
distributable to the partners. If there is no such cash available for
distribution, income will be allocated 95% to limited partners and 5% to WFA.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Accounting
The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles.
Rental Property
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by use of the straight-line method for financial
reporting purposes. For income tax purposes, accelerated lives and methods are
used.
Deferred Costs
Deferred costs are amortized using the straight-line method over the term
of the related agreement.
Income Taxes
No provision will be made for federal, state or local income taxes in the
financial statements of the Partnership. Partners will be required to report on
their tax returns their allocable shares of income, gains, losses, deductions
and credits of the Partnership.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the partnership and
tenants of the properties are operating leases.
F-23
<PAGE> 1595
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
For purposes of the statement of cash flows, the partnership considers all
highly liquid investments consisting of a money market fund to be cash
equivalents. The carrying amount of $528,585 approximates fair value because of
the short maturity of this investment.
NOTE B -- ACQUISITION OF THE PROPERTIES
The Partnership acquired three separate residential apartment complexes
(the "Properties") in 1990 for an aggregate purchase price of $14,013,732. The
purchase represents an aggregate of 707 market-rate rental apartments in the
Dallas, Texas area.
On June 8, 1990, the Partnership acquired Heather Ridge Apartments for
$5,104,350. On August 16, 1990 and September 19, 1990, the Partnership acquired
Oak Forest Apartments and Summit on Post Oak Apartments for $4,409,382 and
$4,500,000, respectively. The purchases were financed by a loan from Citibank.,
N.A. and an advance from WFA.
NOTE C -- MORTGAGES PAYABLE
On April 15, 1996, the Partnership obtained three mortgage loans by the
same lender in the aggregate amount of $10,757,500 and are collateralized by
deeds of trust on the rental properties. The notes bear interest at a rate of
7.53%. Principal and interest are payable by the partnership in monthly
installments of $79,707. A balloon payment of approximately $9,492,902 and the
accrued interest is payable in full on May 1, 2003.
Under agreements with the mortgage lender, the Partnership is required to
make monthly escrow deposits for taxes and insurance.
The liability of the Partnership under the mortgage notes are limited to
the underlying value of the real estate collateral plus other amounts deposited
with the lender.
Aggregate annual maturities of the mortgage payable over each of the next
five years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1997................................... $155,592
1998................................... 170,739
1999................................... 184,049
2000................................... 198,396
2001................................... 213,862
</TABLE>
NOTE D -- MORTGAGE RESERVES HELD IN ESCROW
The Partnership has set up various reserve escrows with the Mortgage Lender
in connection with the Mortgage Loan.
The Replacement Reserve in the amount of $368,782 and $0 at December 31,
1996 and 1995 secures the Partnership's agreement to undertake certain
improvements to the Property over the life of the mortgage loan. The amount of
this Reserve will be reduced as improvements are completed.
An escrow for taxes and insurance has been set up under the Mortgage
Agreement. All taxes and insurance will be paid by the Mortgage Lender out of
these escrow accounts. The amounts held in escrow for insurance and taxes at
December 31, 1996 and 1995 is $399,027 and $0.
The Mortgage Lender has the right to draw upon these escrows in the event
that the Partnership defaults in the performance of its obligations under the
Mortgage Loan, including its obligations to pay principal and
F-24
<PAGE> 1596
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
interest. The Reserve shall be invested in interest bearing instruments.
Interest earned during 1996 and 1995 amounted to $4,912 and $0.
NOTE E -- RELATED PARTY TRANSACTIONS
The Partnership has incurred charges and commitments to companies
affiliated with the general partner. Related party transactions with WFA and its
affiliates include the following:
The Partnership pays to an affiliate of WFA an annual property management
fee equal to 5% of gross operating revenues for the properties. Fees of $195,660
and $186,505 were charged to operations during the years ended December 31, 1996
and December 31, 1995, respectively.
The Partnership pays to WFA an annual administration and investor service
fee of $40,000. This fee increased 5% annually from 1991 to 1995, and commencing
in 1996 the fee is increased 6% annually. Fees of $54,114 and $51,051,
respectively, were charged to operations during the years ended December 31,
1996 and 1995, respectively.
NOTE F -- CONCENTRATION OF CREDIT RISK
At December 31, 1996, the Partnership has cash in the amount of $820,370
held by the Mortgage Lender. The account is insured by the Federal Deposit
Insurance Corporation up to $100,000 an account. The uninsured portion of this
balance at December 31, 1996 is $252,427.
F-25
<PAGE> 1597
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1598
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1599
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1600
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS
OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a small number of apartment properties to
holding an interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1601
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Comparison of Tax-Deferral % Preferred OP
Units and Class I Preferred Stock.......... S-15
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of DFW
Residential Investors Limited
Partnership................................ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-58
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
</TABLE>
i
<PAGE> 1602
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-72
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-76
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-77
LEGAL MATTERS.................................. S-78
EXPERTS........................................ S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1603
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
DFW Residential Investors Limited Partnership. For each unit that you
tender, you may choose to receive of our Tax-Deferral %
Partnership Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred
to as "Common OP Units"), or $ in cash (subject, in each case to
adjustment for any distributions paid to you during the offer period). If
you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1604
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 1605
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tending units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $1,400 per unit for the year ended
December 31, 1997. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis). This is
equivalent to distributions of $ per year on the number of
Tax-Deferral % Preferred OP Units, or distributions of $ per year
on the number of Tax-Deferral Common OP Units, that you would receive in an
exchange for each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a small number of apartment
properties to holding an interest in an operating business that owns and
manages a large portfolio of properties, with risks that do not exist for
your partnership. You should review the risk factors in this Prospectus
Supplement and in the accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income
S-3
<PAGE> 1606
tax purposes, as a partial sale of such units for cash, and as a partial
tax-free contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration of $ consideration
is fair. However, your units are not listed on any national securities
exchange nor quoted on the NASDAQ System, and there is no established
trading market for your units. Secondary sales activity for the units has
been limited and sporadic. Your general partner does not monitor or
regularly receive or maintain information regarding the prices at which
secondary sale transactions in the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
S-4
<PAGE> 1607
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
S-5
<PAGE> 1608
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
S-6
<PAGE> 1609
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
S-7
<PAGE> 1610
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code.
The particular tax consequences to you of the exchange will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership, and whether the "passive loss" rules apply to your investments.
Because the income tax consequences of an exchange of units will not be the same
for everyone, you should consult your tax advisor before determining whether to
tender your units pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a small
number of apartment properties to an interest in a partnership that invests in
and manages a large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
S-8
<PAGE> 1611
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
S-9
<PAGE> 1612
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently own a 11.40% limited partnership interest in your
partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the
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benefits that your general partner expects to result from the offer. For
example, a partner of your partnership would have no opportunity for
liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
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TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
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- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
There are a number of significant differences between Tax-Deferral %
Preferred OP Units and Class I Preferred Stock relating to, among other things,
the nature of the investment, voting rights, distributions, liquidity and
transfer and redemption rights. See "Comparison of Preferred OP Units and Class
I Preferred Stock" for a chart highlighting such differences.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
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exchange of your units for cash and OP Units will be treated, for Federal
income tax purposes, as a partial sale of such units for cash and as a partial
tax-free contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
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In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, the general partner of your partnership is entitled to fees for
its services as general partner while the general partner of the AIMCO Operating
Partnership is not entitled to such fees.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual fee of $25,000 beginning in 1990 and increasing annually at a rate of 5%
beginning in 1991 from your partnership and may receive reimbursement for
expenses generated in its capacity as general partner. The property manager
which received management fees of $125,608 in 1996, $129,884 in 1997 and $68,056
for the first six months of 1998. We have no current intention of changing the
fee structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
S-18
<PAGE> 1621
YOUR PARTNERSHIP
Your Partnership and its Property. DFW Residential Investors Limited
Partnership is a Delaware limited partnership which was formed on January 11,
1990 for the purpose of owning and operating a small number of apartment
properties located in Euless, Texas and North Arlington, Texas, known as "Hunt
Club Apartments" and "Riverbend Village Apartments," respectively. In 1990, it
completed a private placement of units that raised net proceeds of approximately
$13,600,000. Hunt Club and consists of 204 apartment units and Riverbend Village
Apartments consists of 201 apartment units. Your partnership has no employees.
Property Management. Since November 1997, your partnership's property has
been managed by an entity which is now an affiliate of ours. Pursuant to the
management agreement between the property manager and your partnership, the
property manager operates your partnership's property, establishes rental
policies and rates and directs marketing activities. The property manager also
is responsible for maintenance, the purchase of equipment and supplies, and the
selection and engagement of all vendors, suppliers and independent contractors.
The property manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2040, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage notes outstanding on "Hunt Club Apartments" of $3,342,334 and
on "River Bend Apartments" of $3,716,129, payable to AMI Capital, which bear
interest at a rate of 7.61%. The mortgage debt is due December 2002. Your
partnership's agreement of limited partnership also allows your general partner
to lend funds to your partnership. Currently, the general partner of your
partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 1622
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1623
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1624
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1625
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1626
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 1627
SUMMARY FINANCIAL INFORMATION OF DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
The summary financial information of DFW Residential Investors Limited
Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The
summary financial information for DFW Residential Investors Limited Partnership
for the years ended December 31, 1997 and 1996, 1995 and 1994 is based on
audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of Your
Partnership" included herein. See "Index to Financial Statements."
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues..................... $ 1,371,008 $0 $ 2,688,748 $ 2,733,466 $ 2,473,889 $ 2,322,347 $ 2,199,880
Net Income/(Loss).................. 107,439 0 71,243 195,948 685,778 640,330 557,377
BALANCE SHEET DATA:
Real Estate, Net of Accumulated
Depreciation..................... 9,120,257 0 9,308,301 9,564,068 9,619,624 9,706,408 9,811,414
Total Assets....................... $10,898,443 $0 $11,058,358 $11,326,084 $18,502,947 $11,327,535 $11,529,653
Mortgage Notes Payable, including
Accrued Interest................. 7,103,791 0 7,158,375 7,225,442 7,318,515 0 0
Partners' Capital/(Deficit)........ $ 3,570,120 $0 $ 3,462,681 $ 3,583,763 $10,955,001 $10,882,235 $11,123,411
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $1.125 $1.85 $0.00 $1,400.00
</TABLE>
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THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
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<PAGE> 1629
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a small number of apartment
properties. In contrast, the AIMCO Operating Partnership is in the business of
acquiring, marketing, managing and operating a large portfolio of apartment
properties. While diversification of assets may reduce certain risks of
investment attributable to a single property or entity, there can be no
assurance as to the value or performance of our securities or our portfolio of
properties as compared to the value of your units or your partnership. Proceeds
of future asset sales or refinancings by the AIMCO Operating Partnership
generally will be reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
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<PAGE> 1630
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the year ended December 31, 1997 were $1,400 per unit. This is
equivalent to distributions of $ per year on the number of Tax-Deferral
% Preferred OP Units, or distributions of $ per year on the number of
Tax-Deferral Common OP Units, that you would receive in an exchange for each of
your partnership's units. Therefore, distributions with respect to the Preferred
OP Units and Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to your
units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
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<PAGE> 1631
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently own an 11.40% limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for
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<PAGE> 1632
investment, business, personal or other purposes, at their option. If your
partnership were to sell its assets and liquidate, you and your partners would
not need to rely upon capitalization of income or other valuation methods to
estimate the fair market value of your partnership's assets. Instead, such
assets would be valued through negotiations with prospective purchasers (in many
cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
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<PAGE> 1633
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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<PAGE> 1634
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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<PAGE> 1635
For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the sole judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
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<PAGE> 1641
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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<PAGE> 1642
that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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<PAGE> 1643
that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
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The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
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Voting Rights
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Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
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Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
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Liquidity and Transferability/Redemption
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There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
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ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 1652
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 1653
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
S-51
<PAGE> 1654
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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<PAGE> 1655
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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<PAGE> 1656
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 1657
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units the $2.25, and distributions with respect to your units for
the year ended December 31, 1997 were $1,400. This is equivalent to
distributions of $ per year on the number of Tax-Deferral %
Preferred OP Units, or distributions of $ per year on the number of
Tax-Deferral Common OP Units, that you would receive in an exchange for
each of your partnership's units. Therefore, distributions with respect to
the Preferred OP Units and Common OP Units that we are offering are
expected to be , immediately following our offer, than the
distributions with respect to your units. See "Comparison of Ownership of
Your Units and AIMCO OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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<PAGE> 1658
partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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<PAGE> 1659
apartment properties, the manner in which your partnership's property is sold
and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets would be disposed of in an
orderly manner and not sold in forced or distressed sales where sellers might be
expected to dispose of their interests at substantial discounts to their actual
fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
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<PAGE> 1660
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning,
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among other things, any environmental liabilities, deferred maintenance and
estimated capital expenditure and replacement reserve requirements, the
determination and valuation of non-real estate assets and liabilities of your
partnership, the allocation of your partnership's net values between the general
partner, special limited partner and limited partners of your partnership, the
terms and conditions of any debt encumbering the partnership's property, and the
transaction costs and fees associated with a sale of the property. Stanger also
relied upon the assurance of your partnership, AIMCO, and the management of the
partnership's property that any financial statements, budgets, pro forma
statements, projections, capital expenditure estimates, debt, value estimates
and other information contained in this Prospectus Supplement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Delaware law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Hunt Club Apartments and Riverbend Village Partnership owns interests (either directly or through
Apartments. subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2040. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, improve, The purpose of the AIMCO Operating Partnership is to
maintain, operate, lease, sell, dispose of, finance and conduct any business that may be lawfully conducted by
otherwise deal with your partnership's property. a limited partnership organized pursuant to the
Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as
agreement of limited partnership, your partnership may amended from time to time, or any successor to such
perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"),
the business of your partnership including borrowing provided that such business is to be conducted in a
money and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 136 units for cash time to the limited partners and to other persons, and
and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital
of limited partnership. The capital contribution need contributions as may be established by the general
not be equal for all limited partners and no action or partner in its sole discretion. The net capital
consent is required in connection with the admission of contribution need not be equal for all OP Unitholders.
any additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
The general partner may, without the consent of the Unitholder. See "Description of OP Units -- Management
limited partners, sell additional limited partnership by the AIMCO GP" in the accompanying Prospectus.
interest and, with the consent of the limited partners, Subject to Delaware law, any additional partnership
issue other equity interests. Such interests may be interests may be issued in one or more classes, or one
sold on such terms and conditions and the additional or more series of any of such classes, with such
limited partners shall have such rights and obligations designations, preferences and relative, partici-
as the general partner shall determine. In the event pating, optional or other special rights, powers and
the general partner sells additional limited partner duties as shall be determined by the general partner,
interest, prior to the sale of such interests, the in its sole and absolute discretion without the
general partner will offer such interests to the approval of any OP Unitholder, and set forth in a
original limited partners. written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute
partnership, your partnership may contract with the funds or other assets to its subsidiaries or other
general partner or its affiliates for various goods and persons in which it has an equity investment, and such
services, including without limitation, insurance, persons may borrow funds from the AIMCO Operating
insurance brokerage, mortgage brokerage in connection Partnership, on terms and conditions established in the
with financings and refinancings of your partnership's sole and absolute discretion of the general partner. To
property, management, rehabilitation, construction the extent consistent with the business purpose of the
supervision, leasing and property brokerage. The AIMCO Operating Partnership and the permitted
compensation paid under such contracts must be at the activities of the general partner, the AIMCO Operating
then prevailing market rates in the vicinity of your Partnership may transfer assets to joint ventures,
partnership's property. The partnership may not make limited liability companies, partnerships,
loans to the general partner or its affiliates but the corporations, business trusts or other business
general partner and its affiliates may lend money to entities in which it is or thereby becomes a
your partnership if such loan is evidenced by a participant upon such terms and subject to such
promissory note, bears interest at a commercially conditions consistent with the AIMCO Operating Part-
reasonable rate not in excess of 3% above the "base nership Agreement and applicable law as the general
rate" of the First National Bank of Boston and the partner, in its sole and absolute discretion, believes
obligation is subordinate to the obligations of your to be advisable. Except as expressly permitted by the
partnership to pay unrelated creditors. AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money, establish a line of credit and issue restrictions on borrowings, and the general partner has
evidences of indebtedness in furtherance of any of the full power and authority to borrow money on behalf of
purposes of your partnership and to secure such debt by the AIMCO Operating Partnership. The AIMCO Operating
mortgage, pledge or other lien on any of the assets of Partnership has credit agreements that restrict, among
your partnership. other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles a limited partner to inspect the register kept with a statement of the purpose of such demand and at
by your partnership which lists the names of all such OP Unitholder's own expense, to obtain a current
limited partners and the number of units owned by each list of the name and last known business, residence or
limited partner at any reasonable time during normal mailing address of the general partner and each other
business hours. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the All management powers over the business and affairs of
exclusive right to manage and control your the AIMCO Operating Partnership are vested in AIMCO-GP,
partnership's business, to bind your partnership by its Inc., which is the general partner. No OP Unitholder
sole signature and take any action it deems necessary has any right to participate in or exercise control or
or advisable in connection with the business of your management power over the business and affairs of the
partnership. Subject to the limitations contained in AIMCO Operating Partnership. The OP Unitholders have
your partnership's agreement of limited partnership, the right to vote on certain matters described under
the general partner, on behalf of your partnership, may "Comparison of Ownership of Your Units and AIMCO OP
take any action it deems necessary or advisable in Units -- Voting Rights" below. The general partner may
connection with the business of your partnership not be removed by the OP Unitholders with or without
without the consent of the limited partners. No limited cause.
partner has any authority or right to act for or bind
your partnership or participate in or have any control In addition to the powers granted a general partner of
over your partnership business except as required by a limited partnership under applicable law or that are
law. granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general
and its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating
accountable for damages or otherwise to your Partnership for losses sustained, liabilities incurred
partnership or any limited partner for any acts or benefits not derived as a result of errors in
performed or any failure to act by any of them if they judgment or mistakes of fact or law of any act or
determined, in good faith, that such acts or failures omission if the general partner acted in good faith.
to act was in the best interests of your partnership, The AIMCO Operating Partnership Agreement provides for
and such course of conduct did not constitute negli- indemnification of AIMCO, or any director or officer of
gence or misconduct on the part of such person. In AIMCO (in its capacity as the previous general partner
addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general
entitled to indemnification by your partnership against partner, any officer or director of general partner or
any loss, damage, liability, cost or expense sustained the AIMCO Operating Partnership and such other persons
by it or them in connection with your partnership, as the general partner may designate from and against
provided that such loss, damage, liability, cost or all losses, claims, damages, liabilities, joint or
expense was not the result of negligence or misconduct several, expenses (including legal fees), fines,
by such person. However, neither the general partner settlements and other amounts incurred in connection
nor any affiliate will be indemnified for any loss, with any actions relating to the operations of the
damage or cost resulting from the violation of any AIMCO Operating Partnership, as set forth in the AIMCO
Federal or state securities laws in connection with the Operating Partnership Agreement. The Delaware Limited
sale of units unless (i) there has been a successful Partnership Act provides that subject to the standards
adjudication on the merits of each count involving the and restrictions, if any, set forth in its partnership
securities law violations, (ii) such claims have been agreement, a limited partnership may, and shall have
dismissed with prejudice on the merits by a court of the power to, indemnify and hold harmless any partner
competent jurisdiction or (ii) or court of competent or other
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
jurisdiction approves a settlement of such claims. In person from and against any and all claims and demands
such claim for indemnification for Federal or state whatsoever. It is the position of the Securities and
securities law violation, the party seeking Exchange Commission that indemnification of directors
indemnification must place before the court the and officers for liabilities arising under the
position of the SEC and any other applicable regulatory Securities Act is against public policy and is
agency with respect of the issue of indemnification for unenforceable pursuant to Section 14 of the Securities
securities law violations. Any such indemnity provided Act of 1933.
shall be paid, from and only to the extent of, your
partnership's assets.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner and elect a successor general partner upon a affairs of the AIMCO Operating Partnership. The general
vote of the limited partners owning a majority of the partner may not be removed as general partner of the
outstanding units. A general partner may withdraw AIMCO Operating Partnership by the OP Unitholders with
voluntarily from your partnership only if there is or without cause. Under the AIMCO Operating Partnership
another general partner or a successor is elected. The Agreement, the general partner may, in its sole
general partner may admit an additional or substitute discretion, prevent a transferee of an OP Unit from
general partner with the consent of limited partners becoming a substituted limited partner pursuant to the
owning more than 50% of the units. A limited partner AIMCO Operating Partnership Agreement. The general
may not transfer his interests without the consent of partner may exercise this right of approval to deter,
the general partners which may be withheld at the sole delay or hamper attempts by persons to acquire a
discretion of the general partner. controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to cure any ambiguity in the AIMCO Operating Partnership Agreement, whereby
or correct or supplement any provision of your the general partner may, without the consent of the OP
partnership's agreement of limited partnership which is Unitholders, amend the AIMCO Operating Partnership
inconsistent with any other provision and to comply Agreement, amendments to the AIMCO Operating
with applicable tax and securities laws. No amend- Partnership Agreement require the consent of the
ments may be made which affect the obligation of the holders of a majority of the outstanding Common OP
limited partners to make their required capital Units, excluding AIMCO and certain other limited
contribution or affect the timing or amount of the fees exclusions (a "Majority in Interest"). Amendments to
paid by your partnership and no amendments may be made the AIMCO Operating Partnership Agreement may be
which adversely the rights of or the share of profits, proposed by the general partner or by holders of a
losses and distributions allocable or distributable to Majority in Interest. Following such proposal, the
a partner without the consent of the affected partner. general partner will submit any proposed amendment to
Other amendments to your partnership's agreement of the OP Unitholders. The general partner will seek the
limited partnership must be approved by the limited written consent of the OP Unitholders on the proposed
partners owning more than 50% of the units and the amendment or will call a meeting to vote thereon. See
general partner. Certain specified provisions of your "Description of OP Units -- Amendment of the AIMCO
partnership's agreement of limited partnership require Operating Partnership Agreement" in the accompanying
the consent of all limited partners. Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives an annual fee of $25,000 beginning in 1990 and capacity as general partner of the AIMCO Operating
increasing annually at a rate of 5% beginning in 1991. Partnership. In addition, the AIMCO Operating Part-
Moreover, the general partner or certain affiliates may nership is responsible for all expenses incurred
be entitled to compensation for additional services relating to the AIMCO Operating Partnership's ownership
rendered. of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, a limited partner is not liable for any negligence, no OP Unitholder has personal liability for
debts, liabilities, contracts or obligations of your the AIMCO Operating Partnership's debts and
partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for
payments of his capital contribution when due under the AIMCO Operating Partnership's debts and obligations
your partnership's agreement of limited partnership. is generally limited to the amount of their invest-
After its capital contribution has been fully paid, no ment in the AIMCO Operating Partnership. However, the
limited partners will be required to make any further limitations on the liability of limited partners for
capital contributions or lend any funds to your the obligations of a limited partnership have not been
partnership, except as otherwise required by applica- clearly established in some states. If it were
ble law. determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must diligently and partnership agreement, Delaware law generally requires
faithfully devote as much of its time, but is not a general partner of a Delaware limited partnership to
required to devote its full time, to the business of adhere to fiduciary duty standards under which it owes
your partnership and must at all times act in a its limited partners the highest duties of good faith,
fiduciary manner toward your partnership and the fairness and loyalty and which generally prohibit such
limited partners. The general partner at all times has general partner from taking any action or engaging in
a fiduciary responsibility for the safekeeping and use any transaction as to which it has a conflict of
of all partnership funds and assets. The general interest. The AIMCO Operating Partnership Agreement
partner and its affiliates may engage in or possess an expressly authorizes the general partner to enter into,
interest in other business ventures of every nature and on behalf of the AIMCO Operating Partnership, a right
description, including, without limitation, real estate of first opportunity arrangement and other conflict
business ventures, whether or not such other avoidance agreements with various affiliates of the
enterprises shall be in competition with any activities AIMCO Operating Partnership and the general partner, on
of your partnership. such terms as the general partner, in its sole and
absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-65
<PAGE> 1668
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS
PREFERRED OP UNITS
COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding the holders of the Preferred OP respect to certain limited matters
units, the limited partners may Units will have the same voting such as certain amendments and
amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating
of limited partnership, subject to Units. See "Description of OP Partnership Agreement and certain
certain exceptions; terminate your Units" in the accompanying transactions such as the
partnership; remove or elect a Prospectus. So long as any institution of bankruptcy
general partner, approve or Preferred OP Units are outstand- proceedings, an assignment for the
disapprove the sale of all or ing, in addition to any other vote benefit of creditors and certain
substantially all of the assets of or consent of partners required by transfers by the general partner of
your partnership or the merger or law or by the AIMCO Operating its interest in the AIMCO Operating
other reorganization of Partnership Agree- Part-
</TABLE>
S-66
<PAGE> 1669
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
your partnership and authorize the ment, the affirmative vote or nership or the admission of a
issuance of other equity interests consent of holders of at least 50% successor general partner.
in your partnership. The consent of of the outstanding Preferred OP
a limited partner will be deemed to Units will be necessary for Under the AIMCO Operating Partner-
be granted if he does not refuse, effecting any amendment of any of ship Agreement, the general partner
in writing, to consent within the provisions of the Partnership has the power to effect the
thirty days after he receives Unit Designation of the Preferred acquisition, sale, transfer,
notice requesting his consent. OP Units that materially and exchange or other disposition of
adversely affects the rights or any assets of the AIMCO Operating
A general partner may cause the preferences of the holders of the Partnership (including, but not
dissolution of the your partnership Preferred OP Units. The creation or limited to, the exercise or grant
by retiring. Your partnership may issuance of any class or series of of any conversion, option,
be continued by the remaining partnership units, including, privilege or subscription right or
general partner or, if none, the without limitation, any partner- any other right available in
limited partners may agree to ship units that may have rights connection with any assets at any
continue your partnership by senior or superior to the Preferred time held by the AIMCO Operating
electing a successor general OP Units, shall not be deemed to Partnership) or the merger,
partner by unanimous written materially adversely affect the consolidation, reorganization or
consent within 120 days after the rights or preferences of the other combination of the AIMCO
retirement of the general partner. holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Cash Flow are to $ per Preferred OP Unit; tribute quarterly all, or such
be made at reasonable intervals provided, however, that at any time portion as the general partner may
during the fiscal year as de- and from time to time on or after in its sole and absolute discretion
termined by the general partner, the fifth anniversary of the issue determine, of Available Cash (as
and in any event shall be made date of the Preferred OP Units, the defined in the AIMCO Operating
within 60 days after the close of AIMCO Operating Partnership may Partnership Agreement) generated by
each fiscal year. The distributions adjust the annual distribution rate the AIMCO Operating Partnership
payable to the partners are not on the Preferred OP Units to the during such quarter to the general
fixed in amount and depend upon the lower of (i) % plus the annual partner, the special limited
operating results and net sales or interest rate then applicable to partner and the holders of Common
refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date
the disposition of your of five years, and (ii) the annual established by the general partner
partnership's assets. Your dividend rate on the most recently with respect to such quarter, in
partnership has made distributions issued AIMCO non-convertible accordance with their respective
in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating
make distributions in 1998. parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
S-67
<PAGE> 1670
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part-
minor or incompetent, except in Preferred OP Units are not listed nership Agreement restricts the
limited situations, and such person on any securities exchange. The transferability of the OP Units.
may be substituted as a limited Preferred OP Units are subject to Until the expiration of one year
partner provided that: (1) the restrictions on transfer as set from the date on which an OP
transfer complies with the forth in the AIMCO Operating Unitholder acquired OP Units,
then-applicable rules and Partnership Agreement. subject to certain exceptions, such
regulations of any governmental OP Unitholder may not transfer all
authority with jurisdiction over Pursuant to the AIMCO Operating or any portion of its OP Units to
the disposition, (2) except in Partnership Agreement, until the any transferee without the consent
specified circumstances, the expiration of one year from the of the general partner, which
interest transferred is not less date on which a holder of Preferred consent may be withheld in its sole
than 1/2 unit, (3) the transfer, OP Units acquired Preferred OP and absolute discretion. After the
when added to all other assignments Units, subject to certain expiration of one year, such OP
taking place in the preceding 12 exceptions, such holder of Unitholder has the right to
month does not result in Preferred OP Units may not transfer transfer all or any portion of its
termination of the partnership for all or any portion of its Pre- OP Units to any person, subject to
tax purposes, (4) the approval of ferred OP Units to any transferee the satisfaction of certain
the general partner which may be without the consent of the general conditions specified in the AIMCO
withheld in the sole and absolute partner, which consent may be Operating Partnership Agreement,
discretion of the general partner withheld in its sole and absolute including the general partner's
has been granted and (5) the discretion. After the expiration of right of first refusal. See
assignor and assignee have complied one year, such holders of Preferred "Description of OP Units --
with such other conditions as set OP Units has the right to transfer Transfers and Withdrawals" in the
forth in your partnership's all or any portion of its Preferred accompanying Prospectus.
agreement of limited partnership. OP Units to any person, subject to
the satisfaction of
</TABLE>
S-68
<PAGE> 1671
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
There are no redemption rights certain conditions specified in the After the first anniversary of
associated with your units. AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
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CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual fee of $25,000 beginning in 1990 and increasing annually at a rate of 5%
beginning in 1991 from your partnership and may receive reimbursement for
expenses generated in its capacity as general partner. The property manager
received management fees of $125,608 in 1996, $129,884 in 1997 and $68,056 for
the first six months of 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the manager of your partnership's
property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-70
<PAGE> 1673
YOUR PARTNERSHIP
GENERAL
DFW Residential Investors Limited Partnership is a Delaware limited
partnership which raised net proceeds of approximately $13,600,000 in 1990
through a private offering. The promoter for the private offering of your
partnership was Winthrop Securities Co., Inc. Insignia acquired your partnership
in November 1997. AIMCO acquired Insignia in October, 1998. There are currently
a total of 130 limited partners of your partnership and a total of 136 units of
your partnership outstanding. Your partnership is in the business of owning and
managing residential housing. Currently, your partnership owns and manages the
small number of apartment properties described below. Your partnership has no
employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on January 11, 1990 for the purpose of owning
and operating a small number of apartment properties located in Euless, Texas
and North Arlington, Texas, known as "Hunt Club Apartments" and "Riverbend
Village Apartments," respectively. There are 204 apartment units in "Hunt Club
Apartments" consisting of 120 one-bedroom apartments, 75 two-bedroom apartments
and 9 three-bedroom apartments. The total rentable square footage is 175,780
square feet and the average annual rent per apartment unit is $6,904. "River
Bend Apartments" has 201 apartment units. There are 120 one-bedroom apartments
and 81 two-bedroom apartments. The total rentable square footage is 151,799
square feet. The average annual rent per apartment unit is $5,861.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since November 1997, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $125,608, $129,884 and $68,056, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2040
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
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<PAGE> 1674
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had current mortgage notes
outstanding on "Hunt Club Apartments" of $3,342,334 and on "River Bend
Apartments" of $3,716,129. Both mortgage notes are payable to AMI Capital, bear
interest at a rate of 7.61% and are due December 2002. Your partnership's
agreement of limited partnership also allows the general partner of your
partnership to lend funds to your partnership. Currently, the general partner of
your partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
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<PAGE> 1675
Below is selected financial information for DFW Residential Investors
Limited Partnership taken from the financial statements described above. See
"Index to Financial Statements."
<TABLE>
<CAPTION>
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 736,850 Not $ 541,315 $ 357,901 $ 7,803,221 $ 896,321 $ 899,943
Land & Building.............. 11,967,492 Available 11,930,294 11,735,578 11,390,037 11,129,325 10,911,203
Accumulated Depreciation..... (2,847,235) 0 (2,621,993) (2,171,510) (1,770,413) (1,422,917) (1,099,789)
Other Assets................. 1,041,336 0 1,208,742 1,404,115 1,080,102 724,806 818,296
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $10,898,443 $ 0 $11,058,358 $11,326,084 $18,502,947 $11,327,535 $11,529,653
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest................... 7,103,791 7,158,375 7,225,442 7,318,515 0
Other Liabilities............ 224,532 437,302 516,879 229,431 445,300 406,242
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... $ 7,328,323 $ 0 $ 7,595,677 $ 7,742,321 $ 7,547,946 $ 445,300 $ 406,242
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $ 3,570,120 $ 0 $ 3,462,681 $ 3,583,763 $10,955,001 $10,882,235 $11,123,411
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
-----------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue...................... $1,319,380 $2,618,642 $2,544,733 $2,367,720 $2,242,813 $2,115,994
Other Income........................ 51,628 70,106 188,733 106,169 79,534 83,886
---------- --------- ---------- ---------- ---------- ---------- ----------
Total Revenue.............. $1,371,008 $ 0 $2,688,748 $2,733,466 $2,473,889 $2,322,347 $2,199,880
---------- --------- ---------- ---------- ---------- ---------- ----------
Operating Expenses.................. 512,830 0 974,990 995,515 1,015,220 964,364 922,216
General & Administrative............ 68,056 287,873 232,301 144,085 128,563 173,398
Depreciation........................ 225,242 450,483 401,097 347,496 323,128 314,343
Interest Expense.................... 302,058 545,408 558,076 0 0 2,221
Property Taxes...................... 155,383 358,751 350,529 281,310 265,962 230,325
---------- --------- ---------- ---------- ---------- ---------- ----------
Total Expenses............. $1,263,569 $ 0 $2,617,505 $2,537,518 $1,788,111 $1,682,017 $1,642,503
---------- --------- ---------- ---------- ---------- ---------- ----------
Net Income.......................... $ 107,439 $ 0 $ 71,243 $ 195,948 $ 685,778 $ 640,330 $ 557,377
========== ========= ========== ========== ========== ========== ==========
</TABLE>
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<PAGE> 1676
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein. Due to this
partnership being a recent acquisition, very little discussion is available for
variances.
Results of Operations
Six Months Ended June 30, 1998
Due to this partnership being a recent acquisition, no data is available
for the six months ended June 30, 1997.
Net Income
Your partnership recognized net income of $107,439 for the six months ended
June 30, 1998.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,371,008 for the six months ended June 30, 1998.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $512,830 for the
six months ended June 30, 1998. Management expenses totaled $68,056 for the six
months ended June 30, 1998.
General and Administrative Expenses
General and administrative expenses totaled $68,056 for the six months
ended June 30, 1998.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $302,058 for the six months ended June 30, 1998.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $71,243 for the year ended
December 31, 1997, compared to $195,948 for the year ended December 31, 1996.
The decrease in net income of $124,705, or 63.64% was primarily the result of
increased general and administrative expenses and decreased revenues. These
factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,688,748 for the year ended December 31, 1997, compared to $2,733,466 for the
year ended December 31, 1996, a decrease of $44,718, or 1.64%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $974,990 for the
year ended December 31, 1997, compared to $995,515 for the year ended December
31, 1996, a
S-74
<PAGE> 1677
decrease of $20,525 or 2.06%. Management expenses totaled $129,884 for the
year ended December 31, 1997, compared to $125,608 for the year ended December
31, 1996, an increase of $4,276, or 3.40%.
General and Administrative Expenses
General and administrative expenses totaled $287,873 for the year ended
December 31, 1997 compared to $232,301 for the year ended December 31, 1996, an
increase of $55,572 or 23.92%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $545,408 for the year ended December 31, 1997, compared to
$558,076 for the year ended December 31, 1996, a decrease of $12,668, or 2.27%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $195,948 for the year ended
December 31, 1996, compared to $685,778 for the year ended December 31, 1995.
The decrease in net income of $489,830, or 71.43% was primarily the result of
increased interest expenses offset by an increase in revenues. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,733,466 for the year ended December 31, 1996, compared to $2,473,889 for the
year ended December 31, 1995, an increase of $259,577, or 10.49%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $995,515 for the
year ended December 31, 1996, compared to $1,015,220 for the year ended December
31, 1995, a decrease of $19,705 or 1.94%. Management expenses totaled $125,608
for the year ended December 31, 1996, compared to $119,484 for the year ended
December 31, 1995, an increase of $6,124, or 5.13%. The increase resulted from
increased revenues, as management fees are calculated based on a percentage of
revenues .
General and Administrative Expenses
General and administrative expenses totaled $232,301 for the year ended
December 31, 1996 compared to $144,085 for the year ended December 31, 1995, an
increase of $88,216 or 61.22%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $558,076 for the year ended December 31, 1996, compared to $0 for
the year ended December 31, 1995, an increase of $558,076, or 100%. The increase
is due to obtaining a mortgage loan against the property.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $736,850 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
S-75
<PAGE> 1678
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership and
its affiliates are not liable, responsible or accountable for damages or
otherwise to your partnership or any limited partner for any acts performed or
any failure to act by any of them if they determined, in good faith, that such
acts or failure to act was in the best interests of your partnership, and such
course of conduct did not constitute negligence or misconduct on the part of
such person. The general partner of your partnership is owned by AIMCO. See
"Conflicts of Interest."
The general partner and its affiliates are entitled to indemnification by
your partnership against any loss, damage, liability, cost or expense sustained
by it or them in connection with your partnership, provided that such loss,
damage, liability, cost or expense was not the result of negligence or
misconduct by such person. However, neither the general partner nor any
affiliate will be indemnified for any loss, damage or cost resulting from the
violation of any Federal or state securities laws in connection with the sale of
units unless (i) there has been a successful adjudication on the merits of each
count involving the securities law violations, (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction or
(ii) or court of competent jurisdiction approves a settlement of such claims. In
such claim for indemnification for Federal or state securities law violation,
the party seeking indemnification must place before the court the position of
the SEC and any other applicable regulatory agency with respect of the issue of
indemnification for securities law violations. Any such indemnity provided shall
be paid, from and only to the extent of, partnership assets. As part of its
assumption of liabilities in the consolidation, AIMCO will indemnify the general
partner of your partnership and their affiliates for periods prior to and
following the consolidation to the extent of the indemnity under the terms of
your partnership's agreement of limited partnership and applicable law.
No partnership funds will be used to purchase any insurance that insures
any party against any liability for which indemnification is not available
pursuant to your partnership's agreement of limited partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 6,400.00
1995........................................................ 4,475.00
1996........................................................ 55,037.50
1997........................................................ 1,400.00
1998 (through June 30)...................................... 0.00
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale
S-76
<PAGE> 1679
transactions (excluding transactions believed to be between related
parties, family members or the same beneficial owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
AIMCO currently owns an 11.40% limited partnership interest in your
partnership. Except as described above, neither AIMCO, nor, to the best of its
knowledge, any of its affiliates, (i) beneficially own or have a right to
acquire any units, (ii) have effected any transaction in the units, or (iii)
have any contract, arrangement, understanding or relationship with any other
person with respect to any securities of your partnership, including, but not
limited to, contracts, arrangements, understandings or relationships concerning
transfer or voting thereof, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $30,388
1995........................................................ 31,908
1996........................................................ 30,712
1997........................................................ 32,901
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995............................................ $119,485
1996............................................ 125,608
1997............................................ 129,884
1998 (through June 30).......................... 68,056
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation and distributions that would have
been paid to the general partner of your partnership, or the company paid to the
property manager or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
S-77
<PAGE> 1680
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of DFW Residential Investors Limited Partnership
at December 31, 1997, 1996, 1995 and 1994, and for the years then ended,
appearing in this Prospectus Supplement have been audited by Reznick Fedder &
Silverman, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
S-78
<PAGE> 1681
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statement of Operations for the six months ended
June 30, 1998 (unaudited)................................. F-3
Condensed Statement of Cash Flows for the six months ended
June 30, 1998 (unaudited)................................. F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-7
Balance Sheets as of December 31, 1997 and 1996............. F-8
Statements of Income for the years ended December 31, 1997
and 1996.................................................. F-9
Statements of Partners' Capital for the years ended December
31, 1997 and 1996......................................... F-10
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-11
Notes to Financial Statements............................... F-12
Independent Auditors' Report................................ F-16
Balance Sheets as of December 31, 1995 and 1994............. F-17
Statements of Income for the years ended December 31, 1995
and 1994.................................................. F-18
Statements of Partners' Capital for the years ended December
31, 1995 and 1994......................................... F-19
Statements of Cash Flows for the years ended December 31,
1995 and 1994............................................. F-20
Notes to Financial Statements............................... F-21
</TABLE>
F-1
<PAGE> 1682
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 736,850
Receivables and Deposits.................................... 293,887
Other Assets................................................ 747,449
Investment Property
Land...................................................... 1,718,142
Building and related property............................. 10,249,350
-----------
11,967,492
Less: Accumulated depreciation............................ (2,847,235) 9,120,257
----------- -----------
Total Assets:..................................... 10,898,443
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 21,265
Other Accrued Liabilities................................... 53,871
Property Taxes Payable...................................... 149,731
Tenant Security Deposits.................................... 44,793
Notes Payable............................................... 7,058,663
Partners' Capital........................................... 3,570,120
-----------
Total Liabilities and Partners' Capital........... 10,898,443
===========
</TABLE>
F-2
<PAGE> 1683
DFW RESIDENTIAL LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Revenues:
Rental Income............................................... $1,319,380
Other Income................................................ 51,628
----------
Total Revenues:................................... 1,371,008
Expenses:
Operating Expenses.......................................... 512,830
General and Administrative Expenses......................... 68,056
Depreciation Expense........................................ 225,242
Interest Expense............................................ 302,058
Property Tax Expense........................................ 155,383
----------
Total Expenses:................................... 1,263,569
----------
Net Income........................................ $ 107,439
==========
</TABLE>
F-3
<PAGE> 1684
DFW RESIDENTIAL LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Operating Activities:
Net Income (loss)......................................... $ 107,439
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization............................. 257,436
Changes in accounts:
Receivables and deposits and other assets.............. 135,212
Accounts Payable and accrued expenses.................. (212,770)
---------
Net cash provided by (used in) operating
activities........................................ 287,317
---------
Investing Activities
Property improvements and replacements.................... (37,198)
---------
Net cash provided by (used in) investing activities....... (37,198)
---------
Financing Activities
Payments on mortgage...................................... (54,584)
---------
Net cash provided by (used in) financing activities....... (54,584)
---------
Net increase (decrease) in cash and cash
equivalents....................................... 195,535
Cash and cash equivalents at beginning of year.... 541,315
---------
Cash and cash equivalents at end of period........ $ 736,850
=========
</TABLE>
F-4
<PAGE> 1685
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of DFW Residential
Investors Limited Partnership as of June 30, 1998 and for the six months then
ended have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
all such adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 1686
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997 AND 1996
F-6
<PAGE> 1687
INDEPENDENT AUDITORS' REPORT
To the Partners of
DFW Residential Investors Limited Partnership
We have audited the accompanying balance sheets of DFW Residential
Investors Limited Partnership as of December 31, 1997 and 1996, and the related
statements of income, partners' capital and cash flows for the years then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DFW Residential Investors
Limited Partnership as of December 31, 1997 and 1996, and the results of its
operations, changes in partners' capital and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
February 10, 1998
F-7
<PAGE> 1688
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment in real estate
Land...................................................... $ 1,718,142 $ 1,718,142
Buildings, improvement and personal property, net of
accumulated depreciation of $2,621,993 and
$2,171,510............................................. 7,590,159 7,845,926
----------- -----------
9,308,301 9,564,068
----------- -----------
Other assets
Cash and cash equivalents................................. 472,502 291,282
Tenant security deposits -- funded........................ 68,813 66,619
Other deposit accounts, prepaid and other receivables..... 15,056 79,705
Mortgage escrow deposits.................................. 420,927 487,263
Deferred costs, net of accumulated amortization of
$301,003 and $236,615.................................. 772,759 837,147
----------- -----------
Total assets...................................... $11,058,358 $11,326,084
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities applicable to investment in rental property
Mortgages payable......................................... $ 7,113,247 $ 7,225,442
Other liabilities
Accounts payable.......................................... 48,346 157,059
Accrued real estate taxes................................. 285,201 274,804
Accrued interest payable -- mortgage...................... 45,128 --
Rent deferred credits..................................... 1,402 --
Accrued expenses and other liabilities.................... 51,971 23,330
Security deposits......................................... 50,382 61,686
----------- -----------
Total liabilities................................. 7,595,677 7,742,321
Partners' capital........................................... 3,462,681 3,583,763
----------- -----------
Total liabilities and partners' capital........... $11,058,358 $11,326,084
=========== ===========
</TABLE>
See notes to financial statements
F-8
<PAGE> 1689
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenue
Rental.................................................... $2,618,642 $2,544,733
Interest.................................................. 19,478 22,819
Other..................................................... 50,628 165,914
---------- ----------
Total revenue..................................... 2,688,748 2,733,466
---------- ----------
Expenses
Leasing................................................... 60,096 59,010
General and administrative................................ 287,873 232,301
Management fees........................................... 129,884 125,608
Utilities................................................. 192,614 209,727
Repairs and maintenance................................... 306,379 312,036
Painting and decorating................................... 80,549 70,667
Insurance................................................. 46,271 49,762
Taxes..................................................... 358,751 350,529
---------- ----------
Total operating expenses.......................... 1,462,417 1,409,640
---------- ----------
Other expenses
Interest expense -- mortgage.............................. 545,408 558,076
Partnership expenses...................................... 94,809 104,317
Depreciation.............................................. 450,483 401,097
Amortization.............................................. 64,388 64,388
---------- ----------
Total other expenses.............................. 1,155,088 1,127,878
---------- ----------
Total expenses.................................... 2,617,505 2,537,518
---------- ----------
Net income.................................................. $ 71,243 $ 195,948
========== ==========
Net income allocated to general partner..................... $ 712 $ 1,959
========== ==========
Net income allocated to limited partner..................... $ 70,531 $ 193,989
========== ==========
</TABLE>
See notes to financial statements
F-9
<PAGE> 1690
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
LIMITED TOTAL
GENERAL PARTNER UNIT PARTNERS'
PARTNER HOLDERS CAPITAL
--------- ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1995............................. $(417,427) $11,372,428 $10,955,001
Distributions to partners.............................. (82,086) (7,485,100) (7,567,186)
Net income............................................. 1,959 193,989 195,948
--------- ----------- -----------
Balance, December 31, 1996............................. (497,554) 4,081,317 3,583,763
Distributions to partners.............................. (1,924) (190,401) (192,325)
Net income............................................. 712 70,531 71,243
--------- ----------- -----------
Balance, December 31, 1997............................. $(498,766) $ 3,961,447 $ 3,462,681
========= =========== ===========
</TABLE>
See notes to financial statements
F-10
<PAGE> 1691
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 71,243 $ 195,948
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation........................................... 450,483 401,097
Amortization........................................... 64,388 64,388
Changes in assets and liabilities
Decrease (increase) in other deposits accounts,
prepaid and other receivables....................... 64,649 (15,164)
(Decrease) increase in accounts payable.............. (108,713) 17,365
Increase in accrued real estate taxes................ 10,397 274,804
Decrease in security deposits........................ (13,498) (4,119)
(Decrease) increase in accrued expenses and other
liabilities......................................... 28,641 (5,748)
Decrease (increase) in mortgage escrow deposits...... 66,336 (293,291)
Increase in accrued interest payable -- mortgage..... 45,128 --
Increase in rent deferred credits.................... 1,402 --
--------- -----------
Net cash provided by operating activities......... 680,456 635,280
--------- -----------
Cash flows from investing activities
Investment in real estate................................. (194,716) (345,541)
--------- -----------
Net cash used in investing activities............. (194,716) (345,541)
--------- -----------
Cash flows from financing activities
Distributions to partners................................. (192,325) (7,567,186)
Mortgage principal payments............................... (112,195) (93,073)
Increase in deferred costs................................ -- (79,946)
--------- -----------
Net cash used in financing activities............. (304,520) (7,740,205)
--------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 181,220 (7,450,466)
Cash and cash equivalents, beginning........................ 291,282 7,741,748
--------- -----------
Cash and cash equivalents, ending........................... $ 472,502 $ 291,282
========= ===========
Cash paid during the year for interest...................... $ 512,699 $ 558,076
========= ===========
</TABLE>
See notes to financial statements
F-11
<PAGE> 1692
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DFW Residential Investors Limited Partnership (the "Partnership"), a
limited partnership, was formed on January 11, 1990 under the laws of the State
of Delaware for the purposes of acquiring, renovating, operating and otherwise
dealing with certain residential apartments located in the Dallas, Texas,
metropolitan area. The Partnership will terminate on December 31, 2040 or
earlier upon the occurrence of certain events specified in the partnership
agreement.
The general partner of the Partnership is Winthrop Financial Associates, A
Limited Partnership, a Maryland limited partnership ("WFA"). WFC Realty Co.,
Inc., a Massachusetts Corporation ("WFC Realty"), a wholly-owned subsidiary of
WFA, was the initial limited partner of the Partnership and withdrew as a
limited partner upon the first admission of investors. The Partnership sold 136
limited partnership units at $100,000 per unit.
Basis of Accounting
The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment in Real Estate
Real estate is carried at cost. The Partnership provides for depreciation
of buildings, improvements and personal property on the straight-line method
over their estimated useful lives for financial reporting purposes. For income
tax purposes, accelerated methods and lives are used.
Deferred Costs
Deferred costs are capitalized and amortized using the straight-line method
over the term of the related agreement.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership and
tenants of the property are operating leases.
Income Taxes
No provision will be made for federal, state or local income taxes in the
financial statements of the Partnership. Partners will be required to report on
their tax returns their allocable shares of taxable income, gains, losses,
deductions and credits of the Partnership.
Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
highly liquid investments with maturities of less than three months to be cash
equivalents.
F-12
<PAGE> 1693
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain reclassifications have been made in the accompanying financial
statements for 1996 in order to conform to the current year presentation.
NOTE B -- ACQUISITION OF THE PROPERTIES
The Partnership acquired two separate residential apartment complexes (the
"Properties") in 1990 for an aggregate purchase price of $9,624,448. The
purchase represents an aggregate of 405 market-rate rental apartments in the
Dallas, Texas, metropolitan area.
On January 12, 1990, the Partnership acquired The Hunt Club Apartments for
$5,351,851 and, on April 5, 1990, the Partnership acquired Riverbend Apartments
for $4,272,597. Both purchases were financed by a loan from W.F.A., which was
repaid during 1993.
NOTE C -- MORTGAGES PAYABLE
On December 28, 1995, the Partnership obtained two mortgage loans from the
same lender in the aggregate amount of $7,318,515, and they are collateralized
by deeds of trust on the rental properties. The notes bear interest at a rate of
7.61%. Principal and interest are payable by the Partnership in monthly
installments of $54,608. A balloon payment of approximately $6,434,516 and the
accrued interest is payable in full on December 29, 2002.
Under agreements with the mortgage lender, the Partnership is required to
make monthly escrow deposits for taxes and insurance.
The liability of the Partnership under the mortgage notes is limited to the
underlying value of the real estate collateral plus other amounts deposited with
the lender.
Aggregate annual maturities of the mortgages payable over each of the next
five years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1998.................................................... $117,385
1999.................................................... 126,636
2000.................................................... 136,617
2001.................................................... 147,906
2002.................................................... 159,561
</TABLE>
NOTE D -- RELATED PARTY TRANSACTIONS
The Partnership has incurred charges and commitments to companies
affiliated with the general partner. Related party transactions with WFA and its
affiliates include the following:
The Properties were managed by Winthrop Management through October 27,
1997, an affiliate of the general partner. Pursuant to the management agreement
the operating partnerships paid Winthrop a 5% management fee based on gross
rental collections of the Properties. The management fees for the years ended
December 31, 1997 and 1996 amounted to $107,891 and $125,608, respectively.
On October 28, 1997, the Partnership terminated Winthrop Management as the
managing agent and appointed Insignia Residential Group of Texas, Inc.
("Insignia") as the management agent (see note F to the financial statements).
The current management agreement provides for a property management fee equal to
5% of the gross operating revenue generated by the Properties. Fees of $21,993
were charged to operations for the year ended December 31, 1997.
F-13
<PAGE> 1694
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Included in partnership expenses is $5,822 of costs reimbursements and
$6,588 of investor service fees charged to operations for the two months ended
December 31, 1997. The amounts are payable to an affiliate of the general
partner.
The Partnership paid an affiliate of WFA administration and investor
service fees. Included in partnership expenses are fees of $20,491 and $30,712
that were charged to operations for the years ended December 31, 1997 and 1996,
respectively.
During 1996, the Partnership paid an affiliate of the general partner a
financing fee in the amount of $79,946.
NOTE E -- ALLOCATION OF INCOME, LOSSES, AND CASH FLOW
In accordance with the Partnership Agreement, losses and cash flow shall be
allocated 99% to the limited partners and 1% to the general partner; income
shall be allocated to the partners in proportion to the cash available for
distribution to the partners. If there is no such cash available for
distribution, income will be allocated 95% to the limited partners and 5% to the
general partner.
NOTE F -- OTHER INFORMATION
On October 28, 1997, Insignia Financial Group acquired 100% of the class B
stock of First Winthrop Corporation, an affiliate of the general partner.
F-14
<PAGE> 1695
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
[WINGHROP LOGO]
F-15
<PAGE> 1696
INDEPENDENT AUDITORS' REPORT
To the Partners of
DFW Residential Investors Limited Partnership
We have audited the accompanying balance sheets of DFW Residential
Investors Limited Partnership as of December 31, 1995 and 1994, and the related
statements of income, partners' capital and cash flows for the years then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DFW Residential Investors
Limited Partnership as of December 31, 1995 and 1994, and the results of its
operations, changes in partners' capital and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 26, 1996
F-16
<PAGE> 1697
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Investment in Real Estate
Land...................................................... $ 1,718,142 $ 1,718,142
Buildings and improvements, net of accumulated
depreciation of $1,770,413 and $1,422,917.............. 7,901,482 7,988,266
----------- -----------
9,619,624 9,706,408
Other Assets
Cash and cash equivalents................................. 7,741,748 837,488
Tenant security deposits -- funded........................ 61,473 58,838
Other deposit accounts, prepaids and other receivables.... 64,541 27,397
Mortgage escrow deposits.................................. 193,972 --
Deferred costs, net of accumulated amortization of
$397,654 and $363,823.................................. 821,589 697,404
----------- -----------
Total assets...................................... $18,502,947 $11,327,535
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities Applicable to Investment in Real Estate
Mortgages payable......................................... $ 7,318,515 $ --
Other Liabilities
Accounts payable.......................................... 139,694 128,904
Accrued real estate taxes................................. -- 239,773
Security deposits......................................... 60,659 55,679
Accrued expenses and other liabilities.................... 29,078 20,944
----------- -----------
Total liabilities................................. 7,547,946 445,300
----------- -----------
Partners' Capital
Limited partners'......................................... 11,372,428 11,302,108
General partner........................................... (417,427) (419,873)
----------- -----------
10,955,001 10,882,235
----------- -----------
Total Liabilities and Partners' Capital........... $18,502,947 $11,327,535
=========== ===========
</TABLE>
See notes to Financial Statements.
F-17
<PAGE> 1698
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenue
Rental.................................................... $2,367,720 $2,242,813
Interest.................................................. 45,928 31,732
Other..................................................... 60,241 47,802
---------- ----------
2,473,889 2,322,347
---------- ----------
Expenses
Leasing................................................... 61,411 58,299
General and Administrative................................ 144,085 128,563
Management fees........................................... 151,402 143,878
Utilities................................................. 213,615 214,413
Repairs and Maintenance................................... 296,886 245,862
Janitorial................................................ 33,693 58,461
Painting and Decorating................................... 81,097 74,210
Insurance................................................. 108,783 95,190
Taxes..................................................... 281,310 265,962
---------- ----------
Total operating expenses.......................... 1,372,282 1,284,838
Other Expenses
Partnership expenses...................................... 34,502 33,349
Depreciation.............................................. 347,496 323,128
Amortization.............................................. 33,831 40,702
---------- ----------
Total expenses.................................... 1,788,111 1,682,017
---------- ----------
Net income.................................................. $ 685,778 $ 640,330
========== ==========
Net income allocated, to General Partner.................... $ 6,858 $ 6,403
========== ==========
Net income allocated, to Limited Partners................... $ 678,920 $ 633,927
========== ==========
</TABLE>
See notes to Financial Statements.
F-18
<PAGE> 1699
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993............................. $(415,170) $11,538,581 $11,123,411
Distributions.......................................... (11,106) (870,400) (881,506)
Net Income............................................. 6,403 633,927 640,330
--------- ----------- -----------
Balance, December 31, 1994............................. (419,873) 11,302,108 10,882,235
Distributions.......................................... (4,412) (608,600) (613,012)
Net Income............................................. 6,858 678,920 685,778
--------- ----------- -----------
Balance, December 31, 1995............................. $(417,427) $11,372,428 $10,955,001
========= =========== ===========
</TABLE>
See notes to Financial Statements.
F-19
<PAGE> 1700
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 685,778 $ 640,330
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation........................................... 347,496 323,128
Amortization........................................... 33,831 40,702
Changes in assets and liabilities
Increase in deposit accounts, prepaids and other
receivables......................................... (39,779) (6,045)
Increase in accounts payable......................... 10,790 119,969
(Decrease) increase in accrued real estate taxes..... (239,773) 36,569
Increase (decrease) in security deposits............. 4,980 (239)
Increase (decrease) in accrued expenses and other
liabilities......................................... 8,134 (115,926)
Increase in deferred costs........................... (158,016) --
Increase in mortgage escrow deposits................. (193,972) --
---------- ----------
Net cash provided by operating activities......... 459,469 1,038,488
---------- ----------
Cash flows from investing activities
Improvements to properties................................ (260,712) (218,122)
---------- ----------
Net cash used in investing activities............. (260,712) (218,122)
---------- ----------
Cash flows from financing activities
Proceeds from mortgage loans.............................. 7,318,515 --
Distributions............................................. (613,012) (881,506)
Decrease in due to affiliate.............................. -- (1,315)
---------- ----------
Net cash provided by (used in) financing
activities...................................... 6,705,503 (882,821)
---------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... 6,904,260 (62,455)
Cash and cash equivalents, beginning...................... 837,488 899,943
---------- ----------
Cash and cash equivalents, ending......................... $7,741,748 $ 837,488
========== ==========
Cash paid during the year for interest....................
</TABLE>
See notes to Financial Statements.
F-20
<PAGE> 1701
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DFW Residential Investors Limited Partnership (the "Partnership"), a
limited partnership, was formed on January 11, 1990 under the laws of the State
of Delaware for the purposes of acquiring, renovating, operating and otherwise
dealing with certain residential apartments located in the Dallas, Texas
metropolitan area. The Partnership will terminate on December 31, 2040 or
earlier upon the occurrence of certain events specified in the Partnership
Agreement.
The general partner of the Partnership is Winthrop Financial Associates, A
Limited Partnership, a Maryland limited partnership ("WFA"). WFC Realty Co.,
Inc., a Massachusetts Corporation ("WFC Realty"), a wholly-owned subsidiary of
WFA, was the initial limited partner of the Partnership and withdrew as a
limited partner upon the first admission of investors. The partnership sold 136
limited partnership units at $100,000 per unit.
Basis of Accounting
The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment in Rental Property
Real estate is carried at cost. The Partnership provides for depreciation
of buildings and improvements on the straight-line method over their estimated
useful lives for financial reporters purposes. For income tax purposes,
accelerated methods and lives are used.
Deferred Costs
Deferred costs are capitalized and amortized using the straight-line method
over the term of the related agreement as discussed in Note F.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the partnership and
tenants of the property are operating leases.
Income Taxes
No provision will be made for federal, state or local income taxes in the
financial statements of the Partnership. Partners will be required to report on
their tax returns their allocable shares of taxable income, gains, losses,
deductions and credits of the Partnership.
F-21
<PAGE> 1702
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
For purposes of the statement of cash flows, the partnership considers all
highly liquid investments consisting of a money market fund to be cash
equivalents. The carrying amount of $842,997 approximates fair value because of
the short maturity of this instrument.
NOTE B -- ACQUISITION OF THE PROPERTIES
The Partnership acquired two separate residential apartment complexes (the
"Properties") in 1990 for an aggregate purchase price of $9,624,448. The
purchase represents an aggregate of 405 market-rate rental apartments in the
Dallas, Texas metropolitan area.
On January 12, 1990, the Partnership acquired The Hunt Club Apartments for
$5,351,851 and on April 5, 1990 the Partnership acquired Riverbend Apartments
for $4,272,597. Both purchases were financed by a loan from WFA, which was
repaid during 1993.
NOTE C -- MORTGAGES PAYABLE
On December 28, 1995, the partnership obtained two mortgage loans from the
same lender in the aggregate amount of $7,318,515 and are collateralized by
deeds of trust on the rental properties. The notes bear interest at a rate of
7.61%. Principal and interest are payable by the partnership in monthly
installments of $54,608. A balloon payment of approximately $6,434,516 and the
accrued interest is payable in full on December 29, 2002.
Under agreements with the mortgage lender, the partnership is required to
make monthly escrow deposits for taxes and insurance.
The liability of the partnership under the mortgage notes are limited to
the underlying value of the real estate collateral plus other amounts deposited
with the lender.
The carrying amount of the partnerships long term debt approximates fair
value.
Aggregate annual maturities of the mortgages payable over each of the next
five years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1996................................................... $ 88,167
1997................................................... 108,810
1998................................................... 117,385
1999................................................... 126,636
2000................................................... 136,617
</TABLE>
NOTE D -- DUE TO AFFILIATE
Certain costs in connection with the acquisition of the Properties were
paid by WFA in advance of the syndication. WFA was reimbursed for such costs
upon the completion of the syndication. The remaining balance was paid during
1994.
NOTE E -- RELATED PARTY TRANSACTIONS
The Partnership has incurred charges and commitments to companies
affiliated with the general partner. Related party transactions with WFA and its
affiliates include the following:
The Partnership pays to an affiliate of WFA an annual property
management fee equal to 5% of gross operating revenues for the properties.
Fees of $119,494 and $113,490 were charged to operations for the years
ended December 31, 1995 and 1994, respectively.
F-22
<PAGE> 1703
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership pays WFA an annual administration and investor service
fee of $25,000. This fee is increased 5% annually commencing in 1991. Fees
of $31,908 and $30,388 were charged to operations for the years ended
December 31, 1995 and 1994, respectively.
NOTE F -- DEFERRED COSTS
The following is a summary of the deferred costs at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
PERIOD 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Organization costs............................... 5 Years $ 51,547 $ 51,547
Surety fee....................................... 2.33 Years 173,880 173,880
Acquisition fee.................................. 27.5 Years 835,800 835,800
Mortgage loan costs.............................. 7 Years 158,016 --
---------- ----------
1,219,243 1,061,227
Less: Accumulated Amortization................... 397,654 363,823
---------- ----------
$ 821,589 $ 697,404
========== ==========
</TABLE>
NOTE G -- ALLOCATION OF INCOME, LOSSES, AND CASH FLOW
In accordance with the Partnership Agreement, losses and cash flow shall be
allocated 99% to the limited partners and 1% to the general partner; income
shall be allocated to the partners in proportion to the cash available for
distribution to the partners. If there is no such cash available for
distribution, income will be allocated 95% to the limited partners and 5% to the
general partner.
NOTE H -- CONCENTRATION OF CREDIT RISK
The partnership maintains its cash balances in two banks. The balances are
insured by the Federal Deposit Insurance Corporation up to $100,000. As of
December 31, 1995 and 1994, the uninsured portion of the cash balances held in
one of the banks was $6,875,011 and $822,795, respectively.
NOTE I -- SUBSEQUENT EVENT
On January 3, 1996, the partnership distributed $7,398,400 to the investor
limited partners as a return of capital on their investment.
F-23
<PAGE> 1704
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1705
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1706
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1707
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1708
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Four
Quarters Habitat Apartments Associates,
Ltd........................................ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-58
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
</TABLE>
i
<PAGE> 1709
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Your Partnership............. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-76
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-78
LEGAL MATTERS.................................. S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
</TABLE>
ii
<PAGE> 1710
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Four Quarters Habitat Apartments Associates, Ltd.. For each unit that you
tender, you may choose to receive of our Tax-Deferral %
Partnership Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred
to as "Common OP Units"), or $ in cash (subject, in each case to
adjustment for any distributions paid to you during the offer period). If
you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1711
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 1712
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid $0 per unit for the six months ended June 30, 1998.
We will pay fixed quarterly distributions of $ per unit on
the Tax-Deferral % Preferred OP Units before any distributions are paid
to holders of Tax-Deferral Common OP Units. We pay quarterly distributions
on the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the six months ended June 30, 1998, we paid distributions
of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25
on an annual basis).
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
S-3
<PAGE> 1713
THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF
YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our consideration is fair. However, your units are
not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
S-4
<PAGE> 1714
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
S-5
<PAGE> 1715
(This page intentionally left blank)
S-6
<PAGE> 1716
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
S-7
<PAGE> 1717
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us. Although your
partnership did not make any distributions in 1998, it might make distributions
in the future.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
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COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no
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assurance as to our ability to complete future acquisitions. Although we seek
acquisitions and development activities that are accretive on a per share basis,
acquisitions and development activities may fail to perform in accordance with
our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership may require funding from its partners. Continuation of its
operations may be dependent on additional funding from partners or from
other sources. Your partnership faces maturity or balloon payment dates on
its mortgage loans and must either obtain refinancing or sell its property.
If your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. In addition, continuation of your
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partnership without the offer would deny you and your partners the benefits
that your general partner expects to result from the offer. For example, a
partner of your partnership would have no opportunity for liquidity unless
he were to sell his units in a private transaction. Any such sale would
likely be at a very substantial discount from the partner's pro rata share
of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units. Your partnership has not paid any distributions on your units
since the inception of your partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Your partnership has not paid
any distributions on your units since the inception of your partnership.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
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The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
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Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
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exchange of your units for cash and OP Units will be treated, for Federal
income tax purposes, as a partial sale of such units for cash and as a partial
tax-free contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS", "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
S-16
<PAGE> 1726
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
S-17
<PAGE> 1727
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives 28.58%
of the remaining Cash Flow after distributions of 12% per annum of each limited
partner's capital contribution has been made to each limited partner and may
receive reimbursement for expenses generated in its capacity as general partner
from your partnership. The property manager received management fees of $57,825
in 1996, $57,535 in 1997 and $27,845 for the first six months of 1998. We have
no current intention of changing the fee structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Four Quarters Habitat Apartments
Associates, Ltd. is a Florida limited partnership which was formed on May 11,
1983 for the purpose of owning and operating a single
S-18
<PAGE> 1728
apartment property located in Miami, Florida, known as "Four Quarters Habitat".
In 1983, it completed a private placement of units that raised net proceeds of
approximately $8,550,000. Four Quarters Habitat consists of 336 apartment units.
Your partnership has no employees.
Property Management. Since December 1993, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2030, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $10,636,937, payable to LP Commercial
Conduit Mfg. Trust, which bears interest at a rate of 9.84%. The mortgage debt
is due in October 2001. Your partnership's agreement of limited partnership also
allows your general partner to lend funds to your partnership. Currently, the
general partner of your partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
S-19
<PAGE> 1729
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1730
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) 23,764 14,453 12,513
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1731
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger, and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1732
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1733
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)..................................... $ 10,579 $(38,135)
HUD release fee and legal reserve..................... -- 10,202
Real estate depreciation, net of minority interests... 43,391 81,936
Amortization of management contracts.................. 5,773 11,546
Amortization of management company goodwill........... 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation............................ -- 1,715
Amortization of management company goodwill......... 959 1,918
Amortization of management contracts................ 15,345 29,951
Deferred taxes...................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation............................ 60,297 104,471
Interest on convertible debentures.................... (5,012) (10,003)
Preferred unit distributions.......................... (15,107) (30,214)
-------- --------
Funds from operations................................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 1734
SUMMARY FINANCIAL INFORMATION OF FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES,
LTD.
The summary financial information of Four Quarters Habitat Apartments
Associates, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited.
The summary financial information for Four Quarters Habitat Apartments
Associates, Ltd. for the years ended December 31, 1997, 1996, 1995, 1994 and
1993 is based on financial statements. This information should be read in
conjunction with such financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Your Partnership" included herein. See "Index to Financial
Statements."
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............... $ 1,421,584 $ 1,400,602 $ 2,919,682 $ 2,903,134 $ 2,868,355 $ 3,044,719 $ 0
Net Income/(Loss)............ (227,385) (357,532) (619,890) (613,241) (473,614) (239,627) 0
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation... 3,169,653 3,809,551 3,508,749 4,068,757 4,590,045 4,737,381 5,502,447
Total Assets................. $ 5,057,511 $ 5,740,883 $ 5,212,553 $ 5,863,613 $ 6,577,097 $ 7,248,823 $ 8,075,511
Mortgage Notes Payable,
including Accrued
Interest................... 10,680,719 10,762,939 10,722,392 10,806,569 10,876,801 10,944,649 9,831,725
Partners'
Capital/(Deficit).......... (6,437,176) (5,947,433) (6,209,791) (5,589,901) (4,976,660) (4,503,046) (4,263,419)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $1.125 $1.85 $0 $0
</TABLE>
S-25
<PAGE> 1735
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly,
although there can be no assurance, you might receive more consideration if you
do not tender your units and, instead, continue to hold your units and
ultimately receive proceeds from a liquidation of your partnership. However, you
may prefer to receive our offer consideration now rather than wait for uncertain
future net liquidation proceeds. Furthermore, your general partner has no
present intention to liquidate your partnership, and your partnership's
agreement of limited partnership does not require a sale of your partnership's
property by any particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 1736
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
S-27
<PAGE> 1737
Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Based on anticipated annualized distributions of
$ with respect to the Preferred OP Units, current annualized distributions
with respect to the Common OP Units of $2.25, and the 1998 distributions of $0
with respect to your units, distributions with respect to the Preferred OP Units
and Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO to
negative from stable to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that
S-28
<PAGE> 1738
AIMCO's access to the public markets may prove challenging in light of the
volatility in both the equity and capital markets for REITs. Moody's assigned a
"ba3" rating to the proposed Series I Preferred Stock and confirmed its previous
ratings related to AIMCO's preferred stock and debt in its shelf registration
statement. Moody's indicated that its rating action continues to reflect AIMCO's
increasing leveraged profile, including high levels of secured debt and
preferred stock, limited financial flexibility and integration risks resulting
from the merger with Insignia. Moody's also noted AIMCO's high levels of
encumbered properties and material investments in loans to highly leveraged
partnerships in which AIMCO owns a general partnership interest.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high levels of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
S-29
<PAGE> 1739
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent the limited
partners holding of at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership may require funding from its partners. Continuation of
its operations may be dependent on additional funding from partners or from
other sources. Your partnership faces maturity or balloon payment dates on its
mortgage loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership
S-30
<PAGE> 1740
interest in the property owned by your partnership while providing you and other
investors with an opportunity to retain or liquidate your investment or to
invest in the AIMCO Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units. Your Partnership has
not paid any distributions on your units since the inception of your
partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Your Partnership has not paid any distributions on your units
since the inception of your partnership. Historically, the quarterly
distributions paid on the Common OP Units have been equivalent to the
dividends paid on AIMCO's Class A Common Stock. We expect this to
continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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<PAGE> 1741
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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<PAGE> 1743
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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<PAGE> 1744
Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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<PAGE> 1745
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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<PAGE> 1746
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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<PAGE> 1747
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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<PAGE> 1748
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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<PAGE> 1749
that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated;
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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<PAGE> 1750
that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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<PAGE> 1751
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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<PAGE> 1752
distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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<PAGE> 1753
Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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<PAGE> 1754
DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 1755
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 1756
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
S-47
<PAGE> 1757
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
S-48
<PAGE> 1758
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
S-49
<PAGE> 1759
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
S-50
<PAGE> 1760
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
S-51
<PAGE> 1761
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
S-52
<PAGE> 1762
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity Securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value, the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
S-53
<PAGE> 1763
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership property................
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
S-54
<PAGE> 1764
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Based on anticipated annualized distributions of $ with
respect to the Preferred OP Units, current annualized distributions of
$2.25 with respect to the Common OP Units and the 1998 distributions of
$0.00 with respect to your units, distributions with respect to the
Preferred OP Units and Common OP Units being offered are expected to be
, immediately following our offer, than the distributions with
respect to your units. See "Comparison of Ownership of Your Units and AIMCO
OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment
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<PAGE> 1765
properties although there are other ways to value real estate. A
liquidation in the future might generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
S-56
<PAGE> 1766
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
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<PAGE> 1767
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local
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<PAGE> 1768
market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between the general partner, special limited partner and limited partners of
your partnership, the terms and conditions of any debt encumbering the
partnership's property, and the transaction costs and fees associated with a
sale of the property. Stanger also relied upon the assurance of your
partnership, AIMCO, and the management of the partnership's property that any
financial statements, budgets, pro forma statements, projections, capital
expenditure estimates, debt, value estimates and other information contained in
this Prospectus Supplement or provided or communicated to Stanger were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect
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<PAGE> 1769
the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the partnership's property or
other balance sheet assets and liabilities or other information reviewed between
the date of such information provided and the date of the Fairness Opinion; that
your partnership, AIMCO, and the management of the partnership's property are
not aware of any information or facts that would cause the information supplied
to Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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<PAGE> 1770
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Florida law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Four Quarters Habitat. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2030. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, own, The purpose of the AIMCO Operating Partnership is to
manage, operate, rent lease and repair your conduct any business that may be lawfully conducted by
partnership's property. Subject to restrictions a limited partnership organized pursuant to the
contained in your partnership's agreement of limited Delaware Revised Uniform Limited Partnership Act (as
partnership, your partnership may perform any acts to amended from time to time, or any successor to such
accomplish the foregoing including, without limitation, statute) (the "Delaware Limited Partnership Act"),
borrowing funds and creating liens. provided that such business is to be conducted in a
manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership by selling not more than 100 units for Partnership for any partnership purpose from time to
cash and notes to selected persons who fulfill the time to the limited partners and to other persons, and
requirements set for your partnership's agreement of to admit such other persons as additional limited
limited partnership. The capital contribution need not partners, on terms and conditions and for such capital
be equal for all limited partners and no action or contributions as may be established by the general
consent is required in connection with the admission of partner in its sole discretion. The net capital
any additional limited partners. contribution need not be equal for all OP Unitholders.
No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership and any of its The AIMCO Operating Partnership may lend or contribute
affiliates may make loans to your partnership in such funds or other assets to its subsidiaries or other
amounts as the general partner deems appropriate and persons in which it has an equity investment, and such
necessary for the conduct of your partnership's persons may borrow funds from the AIMCO Operating
business. Such loans will be upon such terms and for Partnership, on terms and conditions established in the
such maturities as the managing general partner deems sole and absolute discretion of the general partner. To
reasonable and the interest charged will be three the extent consistent with the business purpose of the
percentage points above the interest rate being charged AIMCO Operating Partnership and the permitted
to the prime customers of Harris Trust & Savings Bank activities of the general partner, the AIMCO Operating
of Chicago. The partnership may contract with the Partnership may transfer assets to joint ventures,
general partners and their affiliates provided that the limited liability companies, partnerships,
required payments to be made by your partnership are at corporations, business trusts or other business
competitive rates. entities in which it is or thereby becomes a
participant upon such terms and subject to such
conditions consistent with the AIMCO Operating Part-
nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money for partnership purposes and if restrictions on borrowings, and the general partner has
security is required therefor, to pledge, mortgage or full power and authority to borrow money on behalf of
subject to any other security device any portion of the AIMCO Operating Partnership. The AIMCO Operating
your partnership assets and to enter into any surety Partnership has credit agreements that restrict, among
arrangements with respect thereto. other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
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<PAGE> 1772
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles limited partners and their representatives to with a statement of the purpose of such demand and at
inspect and copy from the books of account and your such OP Unitholder's own expense, to obtain a current
agreement and any amendments thereto at the principal list of the name and last known business, residence or
place of business of your partnership during normal mailing address of the general partner and each other
business hours upon reasonable notice. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The managing general partner of your partnership is All management powers over the business and affairs of
solely responsible for the management of your the AIMCO Operating Partnership are vested in AIMCO-GP,
partnership's business with all rights and powers Inc., which is the general partner. No OP Unitholder
generally conferred by law or necessary, advisable or has any right to participate in or exercise control or
consistent in connection therewith. The exercise of any management power over the business and affairs of the
power conferred by this agreement on the managing AIMCO Operating Partnership. The OP Unitholders have
general partner serves to bind your partnership. No the right to vote on certain matters described under
limited partner may take part in the management, "Comparison of Ownership of Your Units and AIMCO OP
conduct or control of the business of your partnership Units -- Voting Rights" below. The general partner may
or have the power to sign for or bind your partnership not be removed by the OP Unitholders with or without
to any agreement or document. cause.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general
not liable to your partnership or any limited partner partner is not liable to the AIMCO Operating
for loss or damage that may be caused by any act Partnership for losses sustained, liabilities incurred
performed by it or any failure to act if such acts were or benefits not derived as a result of errors in
done in good faith and in accordance with sound judgment or mistakes of fact or law of any act or
business practices and in accordance with the terms of omission if the general partner acted in good faith.
your partnership's agreement of limited partnership. In The AIMCO Operating Partnership Agreement provides for
addition, the general partner and its affiliates are indemnification of AIMCO, or any director or officer of
entitled to indemnification by your partnership against AIMCO (in its capacity as the previous general partner
any claim, loss, damage, liability, action or expense of the AIMCO Operating Partnership), the general
sustained by it or them as a result of any act or partner, any officer or director of general partner or
omission done in good faith and in accordance with the AIMCO Operating Partnership and such other persons
sound business practices and in accordance with the as the general partner may designate from and against
terms of your partnership's agreement of limited all losses, claims, damages, liabilities, joint or
partnership, provided that such acts do not constitute several, expenses (including legal fees), fines,
fraud, bad faith, breach of fiduciary duty, gross settlements and other amounts incurred in connection
negligence or intentional misconduct. with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, a general partner of your partnership may has exclusive management power over the business and
be removed for cause, exercisable upon written notice affairs of the AIMCO Operating Partnership. The general
upon the written consent or affirmative vote of all of partner may not be removed as general partner of the
the limited partners or, under certain circumstances, AIMCO Operating Partnership by the OP Unitholders with
the limited partners owning 75% or more of the limited or without cause. Under the AIMCO Operating Partnership
partnership units outstanding. If there are no Agreement, the general partner may, in its sole
remaining general partners, all of the limited partners discretion, prevent a transferee of an OP Unit from
or holders of 75% of more the limited partnership becoming a substituted limited partner pursuant to the
units, under certain circumstances, may elect a AIMCO Operating Partnership Agreement. The general
substitute general partner. A general partner may sell partner may exercise this right of approval to deter,
up to 50% of its interest owned at the time of delay or hamper attempts by persons to acquire a
formation with the consent of at least 51% of the controlling interest in the AIMCO Operating Partner-
limited partners. A limited partner may not transfer ship. Additionally, the AIMCO Operating Partnership
his interests in your partnership without the consent Agreement contains restrictions on the ability of OP
of the general partner. Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth
partnership may be proposed by the general partner of in the AIMCO Operating Partnership Agreement, whereby
your partnership or by limited partners owning at least the general partner may, without the consent of the OP
10% of the then outstanding limited partnership Unitholders, amend the AIMCO Operating Partnership
interests. Such amendments will be passed if within Agreement, amendments to the AIMCO Operating
ninety days of submission to the limited partners, the Partnership Agreement require the consent of the
limited partners owning 51% of the outstanding units holders of a majority of the outstanding Common OP
consent. However, no amendment may reduce the rights or Units, excluding AIMCO and certain other limited
interests or enlarge the obligations of the limited exclusions (a "Majority in Interest"). Amendments to
partners. The general partner may amend your the AIMCO Operating Partnership Agreement may be
partnership's agreement of limited partnership as proposed by the general partner or by holders of a
required by law, admit limited partners or is necessary Majority in Interest. Following such proposal, the
to effect changes which do not adversely affect the general partner will submit any proposed amendment to
rights or increase the obligations of limited partners. the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives 28.58% of the remaining Cash Flow after capacity as general partner of the AIMCO Operating
distributions of 12% per annum of each limited Partnership. In addition, the AIMCO Operating Part-
partner's capital contribution has been made to each nership is responsible for all expenses incurred
limited partner. Moreover, the general partner or relating to the AIMCO Operating Partnership's ownership
certain affiliates may be entitled to compensation for of its assets and the operation of the AIMCO Operating
additional services rendered. Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 1774
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, no limited partner is bound by or negligence, no OP Unitholder has personal liability for
personally liable for any of the expenses, liabilities the AIMCO Operating Partnership's debts and
or obligation of your partnership beyond the amount obligations, and liability of the OP Unitholders for
contributed by the limited partner to the capital of the AIMCO Operating Partnership's debts and obligations
your partnership, its notes for capital contributions is generally limited to the amount of their invest-
to your partnership and the limited partner's share of ment in the AIMCO Operating Partnership. However, the
undistributed profits of your partnership. limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Unless otherwise provided for in the relevant
provides that any partner or affiliate may engage in or partnership agreement, Delaware law generally requires
possess an interest in other business ventures of any a general partner of a Delaware limited partnership to
nature and description, including the acquisition, adhere to fiduciary duty standards under which it owes
ownership, financing, leasing, operation, management, its limited partners the highest duties of good faith,
syndication, brokerage, sale, construction and fairness and loyalty and which generally prohibit such
development of real property, and neither your general partner from taking any action or engaging in
partnership nor any other partners shall have any any transaction as to which it has a conflict of
rights in or to such independent venture or the income interest. The AIMCO Operating Partnership Agreement
or profits derived therefrom. Moreover, the general expressly authorizes the general partner to enter into,
partner is not required to devote all of their time or on behalf of the AIMCO Operating Partnership, a right
business efforts to the affairs of your partnership, of first opportunity arrangement and other conflict
but they are required to devote so much time and avoidance agreements with various affiliates of the
attention to your partnership as is reasonably AIMCO Operating Partnership and the general partner, on
necessary and advisable to manage the affairs of your such terms as the general partner, in its sole and
partnership to be the best advantage of your absolute discretion, believes are advisable. The AIMCO
partnership. Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 1775
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS
PREFERRED OP UNITS
COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, limited applicable law or in the AIMCO ship Agreement, the OP Unitholders
partners have voting rights in Operating Partnership Agreement, have voting rights only with
certain circumstances and are not the holders of the Preferred OP respect to certain limited matters
deemed to take part in the control Units will have the same voting such as certain amendments and
of your partnership by virtue of rights as holders of the Common OP termination of the AIMCO Operating
their voting rights. If a court of Units. See "Description of OP Partnership Agreement and certain
competent jurisdiction determines Units" in the accompanying transactions such as the
or the opinion of counsel which is Prospectus. So long as any institution of bankruptcy
reasonably satisfactory to the Preferred OP Units are outstand- proceedings, an assignment for the
holders of 51% of the outstanding ing, in addition to any other vote benefit of creditors and certain
units is obtained that the approval or consent of partners required by transfers by the general partner of
of the following transactions by law or by the AIMCO Operating its interest in the AIMCO Operating
less than all of Partnership Agree- Part-
</TABLE>
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<PAGE> 1776
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
the limited partners will not be ment, the affirmative vote or nership or the admission of a
deemed to be control of your consent of holders of at least 50% successor general partner.
partnership by the limited of the outstanding Preferred OP
partners, the holders of a majority Units will be necessary for Under the AIMCO Operating Partner-
of the then outstanding units may effecting any amendment of any of ship Agreement, the general partner
amend your partnership's agreement the provisions of the Partnership has the power to effect the
of limited partnership and dissolve Unit Designation of the Preferred acquisition, sale, transfer,
of your partnership. If the OP Units that materially and exchange or other disposition of
foregoing conditions are satis- adversely affects the rights or any assets of the AIMCO Operating
fied, the limited partners owning preferences of the holders of the Partnership (including, but not
at least 75% of the outstanding Preferred OP Units. The creation or limited to, the exercise or grant
units may also remove a general issuance of any class or series of of any conversion, option,
partner and elect a substitute partnership units, including, privilege or subscription right or
general partner in the event there without limitation, any partner- any other right available in
is no remaining general partner. ship units that may have rights connection with any assets at any
However, if such showing is not senior or superior to the Preferred time held by the AIMCO Operating
made, all of the above issues will OP Units, shall not be deemed to Partnership) or the merger,
require the approval of all of the materially adversely affect the consolidation, reorganization or
limited partners. The holders of a rights or preferences of the other combination of the AIMCO
majority of the then outstanding holders of Preferred OP Units. With Operating Partnership with or into
must approve the sale of your respect to the exercise of the another entity, all without the
partnership's property and the sale above described voting rights, each consent of the OP Unitholders.
by the general partner of its Preferred OP Units shall have one
general partner interests. (1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
The last remaining general partner Partnership by an "event of
may cause the dissolution of the withdrawal," as defined in the
your partnership by retiring, Delaware Limited Partnership Act
unless the limited partners owning (including, without limitation,
more the 75% of the then bankruptcy), unless, within 90 days
outstanding units elect to continue after the withdrawal, holders of a
your partnership and elect a new "majority in interest," as defined
general partner within sixty days in the Delaware Limited Partnership
of the retirement. Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
The general partner of your $ per Preferred OP Unit; tribute quarterly all, or such
partnership annually distributes provided, however, that at any time portion as the general partner may
substantially all of your partner- and from time to time on or after in its sole and absolute discretion
ship's Cash Flow (as defined in the fifth anniversary of the issue determine, of Available Cash (as
your partnership's agreement of date of the Preferred OP Units, the defined in the AIMCO Operating
limited partnership) with each AIMCO Operating Partnership may Partnership Agreement) generated by
partner receiving their pro rata adjust the annual distribution rate the AIMCO Operating Partnership
share in accordance with their on the Preferred OP Units to the during such quarter to the general
ownership of units. Such lower of (i) % plus the annual partner, the special limited
distributions are made at interest rate then applicable to partner and the holders of Common
convenient period intervals, not U.S. Treasury notes with a maturity OP Units on the record date
less than quarterly, within sixty of five years, and (ii) the annual established by the general partner
days after the close of the dividend rate on the most recently with respect to such quarter, in
quarter. Any proceeds received from issued AIMCO non-convertible accordance with their respective
the sale or refinancing of your preferred stock which ranks on a interests in the AIMCO Operating
partnership's property is parity with its Class H Cumu- Partnership on such record date.
distributed in accordance with your Holders of any other Pre-
partnership's agreement of limited
partnership. The dis-
</TABLE>
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<PAGE> 1777
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
tributions payable to the partners lative Preferred Stock. Such ferred OP Units issued in the
are not fixed in amount and depend distributions will be cumulative future may have priority over the
upon the operating results and net from the date of original issue. general partner, the special
sales or refinancing proceeds Holders of Preferred OP Units will limited partner and holders of
available from the disposition of not be entitled to receive any Common OP Units with respect to
your partnership's assets. Your distributions in excess of distributions of Available Cash,
partnership has not made cumulative distributions on the distributions upon liquidation or
distributions in the past and is Preferred OP Units. No interest, or other distributions. See "Per Share
not projected to make distributions sum of money in lieu of interest, and Per Unit Data" in the
in 1998. shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
interests if the transferee is a Preferred OP Units and the OP Units. The AIMCO Operating Part-
citizen and resident of the U.S., Preferred OP Units are not listed nership Agreement restricts the
the transferor provides an opinion on any securities exchange. The transferability of the OP Units.
that such transfer is made in Preferred OP Units are subject to Until the expiration of one year
compliance with the securities law, restrictions on transfer as set from the date on which an OP
the transferee makes the forth in the AIMCO Operating Unitholder acquired OP Units,
representations required by your Partnership Agreement. subject to certain exceptions, such
partnership's agreement of limited OP Unitholder may not transfer all
partnership and the managing Pursuant to the AIMCO Operating or any portion of its OP Units to
general partner consents, which Partnership Agreement, until the any transferee without the consent
consent may be withheld in its sole expiration of one year from the of the general partner, which
discretion and will be withheld if date on which a holder of Preferred consent may be withheld in its sole
in the opinion of counsel, such OP Units acquired Preferred OP and absolute discretion. After the
transfer would result in the ter- Units, subject to certain expiration of one year, such OP
mination of your partnership for exceptions, such holder of Unitholder has the right to
tax purposes. However, in order for Preferred OP Units may not transfer transfer all or any portion of its
such transferee to be substituted all or any portion of its Pre- OP Units to any person, subject to
for the transferor, in addition to ferred OP Units to any transferee the satisfaction of certain
the foregoing requirements, a without the consent of the general conditions specified in the AIMCO
written instrument evidencing the partner, which consent may be Operating Partnership Agreement,
transfer must be duly executed and withheld in its sole and absolute including the general partner's
acknowledged, the transfer fee must discretion. After the expiration of right of first refusal. See
be paid, the general partner must one year, such holders of Preferred "Description of OP Units --
consent, which may be withheld in OP Units has the right to transfer Transfers and Withdrawals" in the
its sole discretion and such other all or any portion of its Preferred accompanying Prospectus.
requirements as are OP Units to any person, subject to
the satisfaction of
</TABLE>
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<PAGE> 1778
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
set forth in your partnership's certain conditions specified in the After the first anniversary of
agreement of limited partnership AIMCO Operating Partnership Agree- becoming a holder of Common OP
must be satisfied. ment, including the general Units, an OP Unitholder has the
There are no redemption rights partner's right of first refusal. right, subject to the terms and
associated with your units. conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-69
<PAGE> 1779
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives 28.58%
of the remaining Cash Flow after distributions of 12% per annum of each limited
partner's capital contribution has been made to each limited partner and may
receive reimbursement for expenses generated in its capacity as general partner
from your partnership. The property manager received management fees of $57,825
in 1996, $57,535 in 1997 and $27,895 for the first six months of 1998. The AIMCO
Operating Partnership has no current intention of changing the fee structure for
the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-70
<PAGE> 1780
YOUR PARTNERSHIP
GENERAL
Four Quarters Habitat Apartments Associates, Ltd. is a Florida limited
partnership which raised net proceeds of approximately $8,550,000 in 1983
through a private offering. The promoter for the private offering of your
partnership was Van Kampen Merrit, Inc. Insignia acquired your partnership in
December 1993. AIMCO acquired Insignia in October, 1998. There are currently a
total of 100 limited partners of your partnership and a total of 98 units of
your partnership outstanding. Your partnership is in the business of owning and
managing residential housing. Currently, your partnership owns and manages the
single apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on May 11, 1983 for the purpose of owning and
operating a single apartment property located in Miami, Florida, known as "Four
Quarters Habitat." Your partnership's property consists of 336 apartment units.
There are 80 one-bedroom apartments and 256 two-bedroom apartments. The total
rentable square footage of your partnership's property is 364,480 square feet.
Your partnership's property had an average occupancy rate of approximately
95.54% in 1996 and 95.54% in 1997. The average annual rent per apartment unit is
approximately $8,357.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1993, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $57,825, $57,535 and $27,845, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2030
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-71
<PAGE> 1781
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $10,636,937, payable to LP Commercial Conduit Mfg. Trust, which
bears interest at a rate of 9.84%. The mortgage debt is due in October 2001.
Your partnership's agreement of limited partnership also allows the general
partner of your partnership to lend funds to your partnership. Currently, the
general partner of your partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
S-72
<PAGE> 1782
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
Below is selected financial information for Four Quarters Habitat
Apartments Associates, Ltd. taken from the financial statements described above.
See "Index to Financial Statements."
<TABLE>
<CAPTION>
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD.
---------------------------------------------------------
JUNE 30, DECEMBER 31,
--------------------------- ---------------------------
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 267,159 $ 190,812 $ 145,164 $ 185,078
Land & Building.............. 19,523,510 19,328,724 19,445,263 19,170,587
Accumulated Depreciation..... (16,353,857) (15,519,173) (15,936,514) (15,101,830)
Other Assets................. 1,620,699 1,740,520 1,558,640 1,609,778
------------ ------------ ------------ ------------
Total Assets......... $ 5,057,511 $ 5,740,883 $ 5,212,553 $ 5,863,613
============ ============ ============ ============
Mortgage & Accrued
Interest................... 10,680,719 10,762,939 10,722,392 10,806,569
Other Liabilities............ 813,968 925,377 699,952 646,945
------------ ------------ ------------ ------------
Total Liabilities.... $ 11,494,687 $ 11,688,316 $ 11,422,344 $ 11,453,514
------------ ------------ ------------ ------------
Partners Capital (Deficit)... $ (6,437,176) $ (5,947,433) $ (6,209,791) $ (5,589,901)
============ ============ ============ ============
<CAPTION>
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD.
------------------------------------------
DECEMBER 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 285,039 $ 405,330 $ 148,006
Land & Building.............. 18,879,297 18,248,520 18,248,520
Accumulated Depreciation..... (14,289,252) (13,511,139) (12,746,073)
Other Assets................. 1,702,013 2,106,112 2,425,058
------------ ------------ ------------
Total Assets......... $ 6,577,097 $ 7,248,823 $ 8,075,511
============ ============ ============
Mortgage & Accrued
Interest................... 10,876,801 10,944,649 9,831,725
Other Liabilities............ 676,956 807,220 2,507,205
------------ ------------ ------------
Total Liabilities.... $ 11,553,757 $ 11,751,869 $ 12,338,930
------------ ------------ ------------
Partners Capital (Deficit)... $ (4,976,660) $ (4,503,046) $ (4,263,419)
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD.
----------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Rental Revenue......................... $1,380,464 $1,362,744 $2,839,946 $2,828,092 $2,778,104 $2,719,523 $
Other Income........................... 41,120 37,858 79,736 75,042 90,251 325,196
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue.................. $1,421,584 $1,400,602 $2,919,682 $2,903,134 $2,868,355 $3,044,719 $ 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses..................... 419,971 523,748 1,115,970 1,084,787 996,378 969,368
General & Administrative............... 51,601 53,683 106,207 104,564 99,335 94,368
Depreciation........................... 417,343 417,343 834,685 812,578 778,113 765,066
Interest Expense....................... 582,061 586,894 1,142,575 1,177,112 1,190,753 1,129,207
Property Taxes......................... 177,993 176,466 340,135 337,334 277,390 326,337
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses................. $1,648,969 $1,758,134 $3,539,572 $3,516,375 $3,341,969 $3,284,346 $ 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income............................. $ (227,385) $ (357,532) $ (619,890) $ (613,241) $ (473,614) $ (239,627) $ 0
========== ========== ========== ========== ========== ========== ==========
</TABLE>
S-73
<PAGE> 1783
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized a net loss of $227,385 for the six months ended
June 30, 1998, compared to a net loss of $357,532 for the six months ended June
30, 1997. The increase in net income of $130,147 was primarily the result of an
increase in rental revenues and a decrease in operating expenses. These factors
are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,421,584 for the six months ended June 30, 1998, compared to $1,400,602 for
the six months ended June 30, 1997, an increase of $20,982, or 1.50%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $419,971 for the
six months ended June 30, 1998, compared to $523,748 for the six months ended
June 30, 1997, an decrease of $103,777 or 19.81%. This decrease was primarily
the result of a decrease in exterior maintenance costs. Management expenses
totaled $58,243 for the six months ended June 30, 1998, compared to $57,223 for
the six months ended June 30, 1997, an increase of $1,020, or 1.78%.
General and Administrative Expenses
General and administrative expenses totaled $51,601 for the six months
ended June 30, 1998 compared to $53,683 for the six months ended June 30, 1997,
a decrease of $2,082 or 3.88%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $582,061 for the six months ended June 30, 1998, compared to
$586,894 for the six months ended June 30, 1997, a decrease of $4,833, or .82%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized a net loss of $619,890 for the year ended
December 31, 1997, compared to a net loss of $613,241 for the year ended
December 31, 1996, a decrease in net income of $6,649, or 1.08%.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,919,682 for the year ended December 31, 1997, compared to $2,903,134 for the
year ended December 31, 1996, an increase of $16,548, or .57%.
S-74
<PAGE> 1784
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,115,970 for
the year ended December 31, 1997, compared to $1,084,787 for the year ended
December 31, 1996, an increase of $31,183 or 2.87%. Management expenses totaled
$115,435 for the year ended December 31, 1997, compared to $116,020 for the year
ended December 31, 1996, a decrease of $585, or 0.05%.
General and Administrative Expenses
General and administrative expenses totaled $106,207 for the year ended
December 31, 1997 compared to $104,564 for the year ended December 31, 1996, an
increase of $1,643 or 1.57%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $1,142,575 for the year ended December 31, 1997, compared to
$1,177,112 for the year ended December 31, 1996, a decrease of $34,537, or
2.93%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $613,241 for the year ended
December 31, 1996, compared to a net loss of $473,614 for the year ended
December 31, 1995. The decrease in net income of $139,627 was primarily the
result of an increase in operating expenses. These factors are discussed in more
detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,903,134 for the year ended December 31, 1996, compared to $2,868,355 for the
year ended December 31, 1995, an increase of $34,779, or 1.21%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,084,787 for
the year ended December 31, 1996, compared to $996,378 for the year ended
December 31, 1995, an increase of $88,409 or 8.87%. This increase was primarily
the result of an increase in property improvement costs. Management expenses
totaled $116,020 for the year ended December 31, 1996, compared to $114,657 for
the year ended December 31, 1995, a decrease of $1,363, or 1.19%.
General and Administrative Expenses
General and administrative expenses totaled $104,564 for the year ended
December 31, 1996 compared to $99,335 for the year ended December 31, 1995, an
increase of $5,229 or 5.26%. This increase is primarily due to an increase in
professional fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $1,177,112 for the year ended December 31, 1996, compared to
$1,190,753 for the year ended December 31, 1995, a decrease of $13,641, or
1.15%.
S-75
<PAGE> 1785
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $267,159 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership is not
liable to your partnership or any limited partner for loss or damage that may be
caused by any act performed by it or any failure to act if such acts were done
in good faith and in accordance with sound business practices and in accordance
with the terms of your partnership's agreement of limited partnership. As a
result, unitholders might have a more limited right of action in certain
circumstances than they would have in the absence of such a provision in your
partnership's agreement of limited partnership. The general partner of your
partnership is owned by AIMCO. See "Conflicts of Interest".
The general partner and its affiliates are entitled to indemnification by
your partnership against any claim, loss, damage, liability, action or expense
sustained by it or them as a result of any act or omission done in good faith
and in accordance with sound business practices and in accordance with the terms
of your partnership's agreement of limited partnership, provided that such acts
do not constitute fraud, bad faith, breach of fiduciary duty, gross negligence
or intentional misconduct. As part of its assumption of liabilities in the
consolidation, AIMCO will indemnify the general partner of your partnership and
their affiliates for periods prior to and following the consolidation to the
extent of the indemnity under the terms of your partnership's agreement of
limited partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partner of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has paid no distributions in the last five years. The
original cost per unit was $251,471.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions
S-76
<PAGE> 1786
(excluding transactions believed to be between related parties, family members
or the same beneficial owner) was as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1994......................... 0 0.00% 0
1995......................... 0 0.00% 0
1996......................... 0 0.00% 0
1997......................... 0.5 1.41% 1
1998 (through June 30)....... 0 0.00% 0
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- -------------
<S> <C>
1994........................................................ Not available
1995........................................................ Not available
1996........................................................ $ 40,143
1997........................................................ 40,872
1998 (through June 30)...................................... 21,294
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- -------------
<S> <C>
1995........................................................ Not available
1996........................................................ $ 57,825
1997........................................................ $ 57,535
1998 (through June 30)...................................... $ 27,845
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-77
<PAGE> 1787
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
S-78
<PAGE> 1788
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997
(unaudited)............................................... F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Notes to Condensed Financial Statements..................... F-5
Balance Sheets as of December 31, 1997 and 1996
(unaudited)............................................... F-6
Statements of Operations for the twelve months ended
December 31, 1997, 1996 and 1995 (unaudited).............. F-7
Statements of Cash Flows for the twelve months ended
December 31, 1997, 1996 and 1995 (unaudited).............. F-8
</TABLE>
F-1
<PAGE> 1789
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 267,159
Receivables and Deposits.................................... 394,101
Investments................................................. 0
Restricted Escrows.......................................... 183,332
Other Assets................................................ 1,043,266
Investment Property:
Land...................................................... $ 1,775,965
Building and related personal property.................... 17,747,545
------------
19,523,510
Less: Accumulated depreciation............................ (16,353,857) 3,169,653
------------ -----------
Total Assets...................................... $ 5,057,511
===========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable............................................ $ 67,576
Other Accrued Liabilities................................... 461,771
Property Taxes Payable...................................... 177,993
Tenant Security Deposits.................................... 150,410
Notes Payable............................................... 10,636,937
Partners' (Deficit)......................................... (6,437,176)
-----------
Total Liabilities and Partners' Deficit........... $ 5,057,511
===========
</TABLE>
F-2
<PAGE> 1790
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Rental Income............................................. $1,380,464 $1,362,744
Other Income.............................................. 41,120 37,858
---------- ----------
Total Revenues.................................... 1,421,584 1,400,602
Expenses:
Operating Expenses........................................ 419,971 523,748
General and Administrative Expenses....................... 51,601 53,683
Depreciation Expense...................................... 417,343 417,343
Interest Expense.......................................... 582,061 586,894
Property Tax Expense...................................... 177,993 176,466
---------- ----------
Total Expenses.................................... 1,648,969 1,758,134
Net Loss.......................................... $ (227,385) $ (357,532)
========== ==========
</TABLE>
F-3
<PAGE> 1791
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $(227,385) $(357,532)
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 456,863 457,805
Changes in accounts....................................... -- --
Receivables and deposits and other assets.............. (96,364) (168,135)
Accounts Payable and accrued expenses.................. 114,016 272,585
--------- ---------
Net cash provided by (used in) operating
activities...................................... 247,130 204,723
--------- ---------
Investing Activities:
Property improvements and replacements.................... (78,246) (158,136)
Net (increase)/decrease in restricted escrows............. (5,216) (3,070)
--------- ---------
Net cash provided by (used in) investing activities....... (83,462) (161,206)
--------- ---------
Financing Activities: -- --
Payments on mortgage...................................... (41,673) (37,783)
-- --
--------- ---------
Net cash provided by (used in) financing activities....... (41,673) (37,783)
--------- ---------
Net increase (decrease) in cash and cash equivalents...... 121,995 5,734
Cash and cash equivalents at beginning of year............ 145,164 185,078
--------- ---------
Cash and cash equivalents at end of period................ $ 267,159 $ 190,812
========= =========
</TABLE>
F-4
<PAGE> 1792
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Four Quarters Habitat
Apartments Associates, LTD. as of June 30, 1998 and for the six months ended
June 30, 1998 and 1997 have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments are of a recurring nature.
It should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 1793
FOUR QUARTERS HABITAT APARTMENT ASSOCIATES
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 145,164 $ 185,078
Receivables and Deposits.................................. 306,025 268,729
Restricted Escrows........................................ 178,116 171,908
Syndication Costs......................................... 757,386 757,386
Other Assets.............................................. 317,112 411,754
Investment Property:
Land................................................... 1,775,965 1,775,965
Building and related personal property................. 17,669,299 17,394,623
------------ ------------
19,445,264 19,170,588
Less: Accumulated depreciation............................ (15,936,514) (15,101,830)
------------ ------------
3,508,750 4,068,758
Total Assets:..................................... $ 5,212,553 $ 5,863,613
============ ============
Liabilities and Partners' Capital:
Accounts payable.......................................... $ 125,301 $ 12,102
Other Accrued Liabilities................................. 453,736 483,210
Tenant Security Deposits.................................. 164,697 202,129
Notes Payable............................................. 10,678,610 10,756,073
Partners' Capital........................................... (6,209,791) (5,589,901)
------------ ------------
Total Liabilities and Partners' Capital........... $ 5,212,553 $ 5,863,613
============ ============
</TABLE>
F-6
<PAGE> 1794
FOUR QUARTERS HABITAT APARTMENT ASSOCIATES
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental Income.......................................... $2,839,946 $2,828,092 $2,778,104
Other Income........................................... 79,736 75,042 90,251
---------- ---------- ----------
Total Revenues................................. 2,919,682 2,903,134 2,868,355
Expenses:
Operating Expenses..................................... 1,115,970 1,084,787 996,378
General and Administrative Expenses.................... 106,207 104,564 99,335
Depreciation Expense................................... 834,685 812,578 778,113
Interest Expense....................................... 1,142,575 1,177,112 1,190,753
Property Tax Expense................................... 340,135 337,334 277,390
---------- ---------- ----------
Total Expenses................................. 3,539,572 3,516,375 3,341,969
---------- ---------- ----------
Net Loss....................................... $ (619,890) $ (613,241) $ (473,614)
========== ========== ==========
</TABLE>
F-7
<PAGE> 1795
FOUR QUARTERS HABITAT APARTMENT ASSOCIATES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net Income (loss)....................................... $(619,890) $(613,241) $(473,614)
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization........................ 834,685 812,578 778,113
Receivables and deposits and other assets.......... 57,346 31,556 592,695
Accounts Payable and accrued expenses.............. 46,293 20,485 (130,264)
--------- --------- ---------
Net cash provided by (used in) operating
activities.................................... 318,434 251,378 766,930
--------- --------- ---------
Investing Activities:
Property improvements and replacements.................. (274,677) (291,291) (630,777)
Net (increase)/decrease in restricted escrows........... (6,208) 60,680 (188,596)
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (280,885) (230,611) (819,373)
--------- --------- ---------
Financing Activities:
Payments on mortgage.................................... (77,463) (120,728) (67,848)
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................... (77,463) (120,728) (67,848)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (39,914) (99,961) (120,291)
Cash and cash equivalents at beginning of year............ 185,078 285,039 405,330
--------- --------- ---------
Cash and cash equivalents at end of period................ $ 145,164 $ 185,078 $ 285,039
========= ========= =========
</TABLE>
F-8
<PAGE> 1796
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1797
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1798
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1799
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1800
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-16
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Georgetown
of Columbus Associates, L.P................ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-36
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-41
General...................................... S-41
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
</TABLE>
i
<PAGE> 1801
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-72
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
Distributions and Transfers of Units......... S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-76
Compensation Paid to the General Partner and
its Affiliates............................. S-76
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-76
LEGAL MATTERS.................................. S-76
EXPERTS........................................ S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1802
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Georgetown of Columbus Associates, L.P. For each unit that you tender, you
may choose to receive of our Tax-Deferral % Partnership
Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred to as "Common
OP Units"), or $ in cash (subject, in each case to adjustment for
any distributions paid to you during the offer period). If you like, you
can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner (the "general partner") of
your partnership and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1803
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. Your partnership has not paid any distributions
on your units since the inception of your partnership. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)............................... $ $ $ -- $ --
Third Quarter.......................... 41 30 15/16 -- --
Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter......................... 38 32 0.5625 0.5625
Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter......................... 29 3/4 26 0.4625 0.4625
First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter.......................... 22 18 3/8 0.4250 0.4250
Second Quarter......................... 21 18 3/8 0.4250 0.4250
First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 1804
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $0 per unit for the six months ended
June 30, 1998. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis).
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
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THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF
YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
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Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
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<PAGE> 1807
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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<PAGE> 1808
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us. Although your
partnership did not make any distributions in 1998, it might make distributions
in the future.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
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<PAGE> 1810
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no
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<PAGE> 1811
assurance as to our ability to complete future acquisitions. Although we seek
acquisitions and development activities that are accretive on a per share basis,
acquisitions and development activities may fail to perform in accordance with
our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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<PAGE> 1812
rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently do not own any limited partnership interest in
your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the
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benefits that your general partner expects to result from the offer. For
example, a partner of your partnership would have no opportunity for
liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. Your partnership has not paid any distributions on your units
since the inception of your partnership. However, one class of
outstanding Partnership Preferred Units has prior distribution rights and
the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Your partnership has not paid
any distributions on your units since the inception of your partnership.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
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The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
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- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will also pay all costs and expenses of printing and mailing
this Prospectus Supplement and the legal fees and expenses in connection
therewith. We will also pay the fees of Stanger for providing the fairness
opinions for the offer. We estimate that our total costs and expenses in making
the offer (excluding the purchase price of the units payable to you and your
partners) will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
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PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO
STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND
OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO
YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units we
are offering for each of your units, we divided the cash offer consideration by
the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much
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of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you, from a financial point of view. Stanger did not
analyze the fairness of the number of Tax-Deferral % Preferred OP Units or
Tax-Deferral Common OP Units that we are offering for your units.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
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COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual fee of 1% of the gross collected income of your partnership's property
for its services as general partner of your partnership and may receive
reimbursement for expenses generated in that capacity from your partnership. The
property manager received management fees of $51,864 in 1996, $55,922 in 1997
and $28,257 for the first six months of 1998. We have no current intention of
changing the fee structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Georgetown of Columbus Associates, L.P.
is a Delaware limited partnership which was formed on October 5, 1983 for the
purpose of owning and operating a single apartment property located in Columbus,
Ohio, known as "Georgetown of Columbus Apartments." In 1983, it completed a
private placement of units that raised net proceeds of approximately $2,500,000.
Georgetown of Columbus Apartments consists of 150 apartment units. Your
partnership has no employees.
Property Management. Since December 1991, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase
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of equipment and supplies, and the selection and engagement of all vendors,
suppliers and independent contractors. The property manager is affiliated with
us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2026, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $3,706,761, payable to FNMA, which bears
interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your
partnership also has a second mortgage note outstanding of $131,718, on the same
terms as the current mortgage note. Your partnership's agreement of limited
partnership also allows your general partner to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1822
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1823
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1824
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1825
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 1826
SUMMARY FINANCIAL INFORMATION OF GEORGETOWN OF COLUMBUS ASSOCIATES, L.P.
The summary financial information of Georgetown of Columbus Associates,
L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary
financial information for Georgetown of Columbus Associates, L.P. for the years
ended December 31, 1997, 1996 and 1995 is based on audited financial statements.
This information should be read in conjunction with such financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Your Partnership" included
herein. See "Index to Financial Statements."
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues................ $ 560,900 $ 550,891 $ 1,120,563 $ 1,045,905 $ 1,009,083 $ 987,619 $ 962,969
Net Income/(Loss)............. 73,309 80,920 55,874 (29,605) 19,691 27,974 (205,304)
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation.... 1,483,164 1,507,223 1,512,016 1,538,955 1,553,835 1,592,329 1,618,676
Total Assets.................. 1,805,977 1,792,292 1,855,057 1,854,243 1,900,721 1,979,173 1,987,093
Mortgage Notes Payable,
including Accrued
Interest.................... 3,688,228 3,771,102 3,723,480 3,813,563 3,889,235 3,958,582 4,022,133
Partners' Capital/(Deficit)... (2,048,883) (2,097,147) (2,122,192) (2,178,066) (2,148,461) (2,168,152) (2,196,126)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding..................... $1.125 $1.80 $0.000 $0.000
</TABLE>
S-25
<PAGE> 1827
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration, from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 1828
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights, title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
The summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
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Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June 30, 1998 were $0.00. Therefore,
distributions with respect to the Preferred OP Units and Common OP Units that we
are offering are expected to be , immediately following our offer, than
the distributions with respect to your units. See "Comparison of Ownership of
Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that
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AIMCO's access to the public markets may prove challenging in light of the
volatility in both the equity and capital markets for REITs. Moody's assigned a
"ba3" rating to the Class I Preferred Stock proposed to be issued by AIMCO, and
confirmed its previous ratings related to AIMCO's preferred stock and debt in
its shelf registration statement. Moody's indicated that its rating action
continues to reflect AIMCO's increasing leveraged profile, including high levels
of secured debt and preferred stock, limited financial flexibility and
integration risks resulting from the merger with Insignia. Moody's also noted
AIMCO's high level of encumbered properties and material investments in loans to
highly leveraged partnerships in which AIMCO owns a general partnership
interest. At the same time, Moody's confirmed its existing rating on AIMCO's
existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
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Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units. However, one
class of outstanding Partnership Preferred Units has prior distribution
rights and the Tax-Deferral % Preferred OP Units rank equal to six
other outstanding classes of Partnership Preferred Units.
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- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. Your Partnership
has not paid any distributions on your units since the inception of your
partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Your Partnership has not paid any distributions on your units
since the inception of your partnership. Historically, the quarterly
distributions paid on the Common OP Units have been equivalent to the
dividends paid on AIMCO's Class A Common Stock. We expect this to
continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
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If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
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VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share from , 1998, (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P
500 Index, the Morgan Stanley REIT Index, or the price of the 10-year
Treasury Bond or the price of the 30-year Treasury Bond, in each case from
, 1998, (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the sole judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental agency,
or by any other person, before any governmental authority, court or
regulatory or administrative
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agency, authority or tribunal, which (i) challenges or seeks to challenge
the acquisition by the AIMCO Operating Partnership of the units, restrains,
prohibits or delays the making or consummation of the offer, prohibits the
performance of any of the contracts or other arrangements entered into by
the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating
Partnership) seeks to obtain any material amount of damages as a result of
the transactions contemplated by the offer, (ii) seeks to make the purchase
of, or payment for, some or all of the units pursuant to the offer illegal
or results in a delay in the ability of the AIMCO Operating Partnership to
accept for payment or pay for some or all of the units, (iii) seeks to
prohibit or limit the ownership or operation by AIMCO or any of its
affiliates of the entity serving as the general partner of your partnership
or to remove such entity as the general partner of your partnership, or
seeks to impose any material limitation on the ability of the AIMCO
Operating Partnership or any of its affiliates to conduct your
partnership's business or own such assets, (iv) seeks to impose material
limitations on the ability of the AIMCO Operating Partnership or any of its
affiliates to acquire or hold or to exercise full rights of ownership of
the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to
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acquire beneficial ownership of more than four percent of the units, or
shall have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than four percent of the
units, or (ii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect to a
merger, consolidation, purchase or lease of assets, debt refinancing or
other business combination with or involving your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking
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of any such action, there can be no assurance that any such additional
approval or action, if needed, would be obtained without substantial conditions
or that adverse consequences might not result to your partnership's business, or
that certain parts of your partnership's business might not have to be disposed
of or other substantial conditions complied with in order to obtain such
approval or action, any of which could cause the AIMCO Operating Partnership to
elect to terminate the offer without purchasing units hereunder. The AIMCO
Operating Partnership's obligation to purchase and pay for units is subject to
certain conditions, including conditions related to the legal matters discussed
in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
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RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any
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Parity Units shall be declared ratably in proportion to the respective
amounts of distributions accumulated, accrued and unpaid on the Preferred OP
Units and accumulated, accrued and unpaid on such Parity Units. Except as set
forth in the preceding sentence, unless distributions on the Preferred OP Units
equal to the full amount of accumulated, accrued and unpaid distributions have
been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof has been or contemporaneously is set apart
for such payment, for all past distribution periods, no distributions shall be
declared or paid or set apart for payment by the AIMCO Operating Partnership
with respect to any Parity Units. Unless full cumulative distributions
(including all accumulated, accrued and unpaid distributions) on the Preferred
OP Units have been declared and paid, or declared and set apart for payment, for
all past distribution periods, no distributions (other than distributions or
distributions paid in Junior Units or options, warrants or rights to subscribe
for or purchase Junior Units) may be declared or paid or set apart for payment
by the AIMCO Operating Partnership and no other distribution of cash or other
property may be declared or made, directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall any Junior Units be
redeemed, purchased or otherwise acquired (except for a redemption, purchase or
other acquisition of Common OP Units made for purposes of an employee incentive
or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for
any consideration (or any monies be paid to or made available for a sinking fund
for the redemption of any such Junior Units), directly or indirectly, by the
AIMCO Operating Partnership (except by conversion into or exchange for Junior
Units, or options, warrants or rights to subscribe for or purchase Junior
Units), nor shall any other cash or other property be paid or distributed to or
for the benefit of holders of Junior Units. Notwithstanding the foregoing
provisions of this paragraph, the AIMCO Operating Partnership shall not be
prohibited from (i) declaring or paying or setting apart for payment any
distribution on any Parity Units or (ii) redeeming, purchasing or otherwise
acquiring any Parity Units, in each case, if such declaration, payment,
redemption, purchase or other acquisition is necessary to maintain AIMCO's
qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income gain will be made to any
holder of Junior Units upon the liquidation, dissolution or winding up of the
AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up
of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such Parity Units ratably in the same proportion as the respective
amounts that would be payable on such Preferred OP Units and any such Parity
Units if all amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of the AIMCO Operating
Partnership will not include a consolidation or merger of the AIMCO Operating
Partnership with one or more partnerships, corporations or other entities, or a
sale or transfer of all or substantially all of the AIMCO Operating
Partnership's assets. Upon any liquidation, dissolution or winding up of the
AIMCO Operating Partnership, after all allocations shall have
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<PAGE> 1845
been made in full to the holders of Preferred OP Units and any Parity Units
to enable them to receive their Liquidation Preference, any Junior Units shall
be entitled to receive any and all assets remaining to be paid or distributed,
and the holders of the Preferred OP Units and any Parity Units shall not be
entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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<PAGE> 1846
DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 1847
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 1848
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 1849
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 1850
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
S-50
<PAGE> 1851
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 1852
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- ---------------
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25, and distributions with respect to your units for
the six months ended June, 1998 were $0.00. Therefore, distributions with
respect to the Preferred OP Units and Common OP Units that we are offering
are expected to be , immediately following our offer, than the
distributions with respect to your units. See "Comparison of Ownership of
Your Units and AIMCO OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment
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properties although there are other ways to value real estate. A
liquidation in the future might generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
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Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
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We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning,
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among other things, any environmental liabilities, deferred maintenance and
estimated capital expenditure and replacement reserve requirements, the
determination and valuation of non-real estate assets and liabilities of your
partnership, the allocation of your partnership's net values between the general
partner, special limited partner and limited partners of your partnership, the
terms and conditions of any debt encumbering the partnership's property, and the
transaction costs and fees associated with a sale of the property. Stanger also
relied upon the assurance of your partnership, AIMCO, and the management of the
partnership's property that any financial statements, budgets, pro forma
statements, projections, capital expenditure estimates, debt, value estimates
and other information contained in this Prospectus Supplement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
S-60
<PAGE> 1862
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Delaware law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Georgetown of Columbus Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Distributable Cash (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2026. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, develop, The purpose of the AIMCO Operating Partnership is to
operate, lease, manage and hold for investment and conduct any business that may be lawfully conducted by
production of income with your partnership's property. a limited partnership organized pursuant to the
Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as
agreement of limited partnership, your partnership may amended from time to time, or any successor to such
perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"),
the business of your partnership including borrowing provided that such business is to be conducted in a
money and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
S-61
<PAGE> 1863
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 25 units for cash and time to the limited partners and to other persons, and
notes to selected persons who fulfill the requirements to admit such other persons as additional limited
set forth in your partnership's agreement of limited partners, on terms and conditions and for such capital
partnership. The capital contribution need not be equal contributions as may be established by the general
for all limited partners and no action or consent is partner in its sole discretion. The net capital
required in connection with the admission of any contribution need not be equal for all OP Unitholders.
additional limited partners, except that the admission No action or consent by the OP Unitholders is required
of the limited partners other than those who purchase in connection with the admission of any additional OP
the 25 units and substituted limited partners must be Unitholder. See "Description of OP Units -- Management
effected by an amendment to your partnership's by the AIMCO GP" in the accompanying Prospectus.
agreement of limited partnership executed and Subject to Delaware law, any additional partnership
acknowledge by the general partner and all the limited interests may be issued in one or more classes, or one
partners. or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute
partnership, your partnership may contract with the funds or other assets to its subsidiaries or other
general partner or its affiliates for various goods and persons in which it has an equity investment, and such
services as specified in your partnership's agreement persons may borrow funds from the AIMCO Operating
of limited partnership. In addition, the general Partnership, on terms and conditions established in the
partner is authorized to lend money to your partnership sole and absolute discretion of the general partner. To
upon the right of the general partner to be reimbursed the extent consistent with the business purpose of the
for sums expended by the general partner in the conduct AIMCO Operating Partnership and the permitted
of the business of your partnership if such expenditure activities of the general partner, the AIMCO Operating
are authorized and not otherwise restricted under the Partnership may transfer assets to joint ventures,
terms of your partnership's agreement of limited part- limited liability companies, partnerships,
nership; provided that interest on such loans will corporations, business trusts or other business
accrue at the greater of 2% over the prime interest entities in which it is or thereby becomes a
rate charged by the Third National Bank in Nashville, participant upon such terms and subject to such
adjusted monthly or the general partner's actual conditions consistent with the AIMCO Operating Part-
interest cost in borrowing such amounts. The principal nership Agreement and applicable law as the general
and interest with respect to such loans will be fully partner, in its sole and absolute discretion, believes
paid prior to the distributions of funds to the to be advisable. Except as expressly permitted by the
partners unless such loans contain a specific provision AIMCO Operating Partnership Agreement, neither the
to the contrary. general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to obtain a loan of up to $1,650,000 from an restrictions on borrowings, and the general partner has
institutional lender and to execute, acknowledge and full power and authority to borrow money on behalf of
deliver such documents and instruments, including the AIMCO Operating Partnership. The AIMCO Operating
promissory notes, collection agreements, deeds to Partnership has credit agreements that restrict, among
secure debts, deeds of trust, mortgages, assignments other things, its ability to incur indebtedness. See
and other documents and security instruments as may be "Risk Factors -- Risks of Significant Indebtedness" in
necessary or desirable in connection with obtaining the accompanying Prospectus.
such loan and also borrow money in the ordinary course
of business and as security therefor to mortgage all or
any part of the real property of your partnership. The
partnership may also offer and sell up to $500,000 of
mortgage-backed bonds.
</TABLE>
S-62
<PAGE> 1864
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles a limited partner to inspect the register with a statement of the purpose of such demand and at
containing the names and addresses of all limited such OP Unitholder's own expense, to obtain a current
partners at all reasonable times at the principal list of the name and last known business, residence or
office of your partnership. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the All management powers over the business and affairs of
exclusive right to manage and control the partnership's the AIMCO Operating Partnership are vested in AIMCO-GP,
business, to bind your partnership by its sole Inc., which is the general partner. No OP Unitholder
signature and take any action it deems necessary or has any right to participate in or exercise control or
advisable in connection with the business of your management power over the business and affairs of the
partnership. No limited partner has any right or power AIMCO Operating Partnership. The OP Unitholders have
to take part in any way in the control of your the right to vote on certain matters described under
partnership business except as may be expressly "Comparison of Ownership of Your Units and AIMCO OP
provided in your partnership's agreement of limited Units -- Voting Rights" below. The general partner may
partnership or by applicable statutes. not be removed by the OP Unitholders with or without
cause.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general
will not incur any liability to your partnership or any partner is not liable to the AIMCO Operating
limited partner for any mistakes or errors in judgment Partnership for losses sustained, liabilities incurred
or for any acts or omission believed by the general or benefits not derived as a result of errors in
partner in good faith to be within the scope of judgment or mistakes of fact or law of any act or
authority conferred upon it by your partnership omission if the general partner acted in good faith.
agreement. In addition, your partnership will, to the The AIMCO Operating Partnership Agreement provides for
extent permitted by law, indemnify and save harmless indemnification of AIMCO, or any director or officer of
the general partner against and from any personal loss, AIMCO (in its capacity as the previous general partner
liability (including attorneys' fees) or damage of the AIMCO Operating Partnership), the general
incurred by it as the result of any act or omission in partner, any officer or director of general partner or
its capacity as general partner unless such loss, the AIMCO Operating Partnership and such other persons
liability or damage results from gross negligence or as the general partner may designate from and against
willful misconduct by the general partner. all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other person from and against any and all claims and
demands whatso-
</TABLE>
S-63
<PAGE> 1865
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ever. It is the position of the Securities and Exchange
Commission that indemnification of directors and
officers for liabilities arising under the Securities
Act is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove a general has exclusive management power over the business and
partner following notice and a failure to cure the affairs of the AIMCO Operating Partnership. The general
injury to your partnership within a reasonable time for partner may not be removed as general partner of the
cause upon the vote of the limited partners holding 51% AIMCO Operating Partnership by the OP Unitholders with
of the then outstanding units. The general partner may or without cause. Under the AIMCO Operating Partnership
withdraw voluntarily from your partnership with the Agreement, the general partner may, in its sole
consent of holders of 51% of the then outstanding discretion, prevent a transferee of an OP Unit from
units. A substitute general partner may be elected upon becoming a substituted limited partner pursuant to the
the affirmative vote of limited partners owning more AIMCO Operating Partnership Agreement. The general
than 50% of the units. A limited partner may not partner may exercise this right of approval to deter,
transfer his interests without the consent of the delay or hamper attempts by persons to acquire a
general partner which may be withheld at the sole controlling interest in the AIMCO Operating Partner-
discretion of the general partner. ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the limited partners owning more than 50% in the AIMCO Operating Partnership Agreement, whereby
of the units and the general partner. Any amendment the general partner may, without the consent of the OP
which alters a limited partner's interest in the Unitholders, amend the AIMCO Operating Partnership
capital profits, Distributable Cash of your partnership Agreement, amendments to the AIMCO Operating
must be approved by the affected partner. Such proposed Partnership Agreement require the consent of the
amendments may be presented to the limited partners holders of a majority of the outstanding Common OP
upon the motion of the general partner or receipt of a Units, excluding AIMCO and certain other limited
written request executed by limited partners owning at exclusions (a "Majority in Interest"). Amendments to
least 25% of the units then outstanding. the AIMCO Operating Partnership Agreement may be
proposed by the general partner or by holders of a
Majority in Interest. Following such proposal, the
general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives an annual fee of 1% of the gross collected capacity as general partner of the AIMCO Operating
income from your partnership's property. Moreover, the Partnership. In addition, the AIMCO Operating Part-
general partner or certain affiliates may be entitled nership is responsible for all expenses incurred
to compensation for additional services rendered. relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
S-64
<PAGE> 1866
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, the liability of each of the limited negligence, no OP Unitholder has personal liability for
partners for his share of the losses and debts of your the AIMCO Operating Partnership's debts and
partnership is limited to the total capital obligations, and liability of the OP Unitholders for
contribution of such limited partners (subject to the the AIMCO Operating Partnership's debts and obligations
terms and conditions pursuant to which such capital is generally limited to the amount of their invest-
contribution is to be paid) plus, to the extent that ment in the AIMCO Operating Partnership. However, the
such limited partner rightfully has received the return limitations on the liability of limited partners for
of such capital contribution, any sum, not in excess of the obligations of a limited partnership have not been
such return, necessary to discharge liabilities of your clearly established in some states. If it were
partnership to all creditors who extended credit before determined that the AIMCO Operating Partnership had
such return; provided that the liability with respect been conducting business in any state without compli-
to rightfully returned capital contribution is limited ance with the applicable limited partnership statute,
to one year from the date of such return. or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must devote such of partnership agreement, Delaware law generally requires
its time and that of its employees to your partnership a general partner of a Delaware limited partnership to
business as may be reasonably necessary to carry on and adhere to fiduciary duty standards under which it owes
conduct your partnership's business. The general its limited partners the highest duties of good faith,
partner must use its best effort to do all other things fairness and loyalty and which generally prohibit such
and perform such other duties as may be reasonably general partner from taking any action or engaging in
necessary to the successful operation of your any transaction as to which it has a conflict of
partnership and the general partner must act as a interest. The AIMCO Operating Partnership Agreement
fiduciary with respect to the assets and business of expressly authorizes the general partner to enter into,
your partnership. The general partner and its on behalf of the AIMCO Operating Partnership, a right
affiliates may engage in or possess an interest in of first opportunity arrangement and other conflict
other business ventures of every nature and avoidance agreements with various affiliates of the
description, including, without limitation, real estate AIMCO Operating Partnership and the general partner, on
business ventures, whether or not such other enterprise such terms as the general partner, in its sole and
is in competition with any of the activities of your absolute discretion, believes are advisable. The AIMCO
partnership. Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-65
<PAGE> 1867
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
<TABLE>
<S> <C> <C>
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding the holders of the Preferred OP respect to certain limited matters
units, the limited partners may Units will have the same voting such as certain amendments and
amend your partnership's agreement rights as holders of the Common OP termination of the AIMCO Operating
of limited partnership with the Units. See "Description of OP Partnership Agreement and certain
approval of the general partner, Units" in the accompanying transactions such as the
subject to certain exceptions; Prospectus. So long as any institution of bankruptcy
terminate your partnership with the Preferred OP Units are outstand- proceedings, an assignment for the
approval of the general partner; ing, in addition to any other vote benefit of creditors and certain
remove or elect a general partner or consent of partners required by transfers by the general partner of
and approve or disapprove the sale law or by the AIMCO Operating its interest in the AIMCO Operating
of all or a Partnership Agree- Part-
</TABLE>
S-66
<PAGE> 1868
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
material portion of your ment, the affirmative vote or nership or the admission of a
partnership's property. consent of holders of at least 50% successor general partner.
of the outstanding Preferred OP
The general partner may cause the Units will be necessary for Under the AIMCO Operating Partner-
dissolution of your partnership by effecting any amendment of any of ship Agreement, the general partner
retiring. Your partnership may then the provisions of the Partnership has the power to effect the
be reformed by the limited partners Unit Designation of the Preferred acquisition, sale, transfer,
holding 51% of the units then OP Units that materially and exchange or other disposition of
outstanding within ninety days adversely affects the rights or any assets of the AIMCO Operating
following such retirement. In such preferences of the holders of the Partnership (including, but not
an event, your partnership will Preferred OP Units. The creation or limited to, the exercise or grant
dissolve and all of its assets and issuance of any class or series of of any conversion, option,
liability will be contributed to a partnership units, including, privilege or subscription right or
new partnership and all parties of without limitation, any partner- any other right available in
your partnership will become ship units that may have rights connection with any assets at any
parties to the new partnership. senior or superior to the Preferred time held by the AIMCO Operating
OP Units, shall not be deemed to Partnership) or the merger,
materially adversely affect the consolidation, reorganization or
rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such
are to be made quarterly on or provided, however, that at any time portion as the general partner may
about January 15, April 15, July 15 and from time to time on or after in its sole and absolute discretion
and October 15. The distributions the fifth anniversary of the issue determine, of Available Cash (as
payable to the partners are not date of the Preferred OP Units, the defined in the AIMCO Operating
fixed in amount and depend upon the AIMCO Operating Partnership may Partnership Agreement) generated by
operating results and net sales or adjust the annual distribution rate the AIMCO Operating Partnership
refinancing proceeds available from on the Preferred OP Units to the during such quarter to the general
the disposition of your lower of (i) % plus the annual partner, the special limited
partnership's assets. Your interest rate then applicable to partner and the holders of Common
partnership has not made U.S. Treasury notes with a maturity OP Units on the record date
distributions in the past and is of five years, and (ii) the annual established by the general partner
not projected to make distributions dividend rate on the most recently with respect to such quarter, in
in 1998. issued AIMCO non-convertible accordance with their respective
preferred stock which ranks on a interests in the AIMCO Operating
parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
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<PAGE> 1869
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and such person Preferred OP Units and the OP Units. The AIMCO Operating Part-
will become a substitute limited Preferred OP Units are not listed nership Agreement restricts the
partner if: (1) a written on any securities exchange. The transferability of the OP Units.
assignment has been duly executed Preferred OP Units are subject to Until the expiration of one year
and acknowledged by the assignor restrictions on transfer as set from the date on which an OP
and assignee and delivered to the forth in the AIMCO Operating Unitholder acquired OP Units,
general partners, (2) the approval Partnership Agreement. subject to certain exceptions, such
of the general partner which may be OP Unitholder may not transfer all
withheld in the sole discretion and Pursuant to the AIMCO Operating or any portion of its OP Units to
which will be withheld if the Partnership Agreement, until the any transferee without the consent
general partner reasonably believes expiration of one year from the of the general partner, which
that the transfer violates date on which a holder of Preferred consent may be withheld in its sole
applicable securities law or result OP Units acquired Preferred OP and absolute discretion. After the
in adverse tax consequences, Units, subject to certain expiration of one year, such OP
including the termination of your exceptions, such holder of Unitholder has the right to
partnership for tax purposes, (3) Preferred OP Units may not transfer transfer all or any portion of its
the assignee has agreement to bound all or any portion of its Pre- OP Units to any person, subject to
by all of the terms of your ferred OP Units to any transferee the satisfaction of certain
partnership's agreement of limited without the consent of the general conditions specified in the AIMCO
partnership and absolute discre- partner, which consent may be Operating Partnership Agreement,
tion of the general partner has withheld in its sole and absolute including the general partner's
been granted, (4) the assignee discretion. After the expiration of right of first refusal. See
represents he is at least 18 years one year, such holders of Preferred "Description of OP Units --
of age, is a citizen and resident OP Units has the right to transfer Transfers and Withdrawals" in the
of the U.S., has sufficient finan- all or any portion of its Preferred accompanying Prospectus.
cial resources to maintain the OP Units to any person, subject to
interest ac- the satisfaction of
</TABLE>
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<PAGE> 1870
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
quired and that he is not acquiring certain conditions specified in the After the first anniversary of
the interest with a view to resell AIMCO Operating Partnership Agree- becoming a holder of Common OP
the interest and (5) the assignor ment, including the general Units, an OP Unitholder has the
and assignee have complied with partner's right of first refusal. right, subject to the terms and
such other conditions as set forth conditions of the AIMCO Operating
in your partnership's agreement of After a one-year holding period, a Partnership Agreement, to require
limited partnership. holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
There are no redemption rights therefor, at the AIMCO Operating Common OP Units held by such party
associated with your units. Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
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<PAGE> 1871
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual fee of 1% of the gross collected income from your partnership's property
and may receive reimbursement for expenses generated in that capacity from your
partnership. The property manager received management fees of $51,864 in 1996,
$55,922 in 1997 and $28,257 for the first six months of 1998. The AIMCO
Operating Partnership has no current intention of changing the fee structure for
the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-70
<PAGE> 1872
YOUR PARTNERSHIP
GENERAL
Georgetown of Columbus Associates, L.P. is a Delaware limited partnership
which raised net proceeds of approximately $2,500,000 in 1983 through a private
offering. The promoter for the private offering of your partnership was
Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO
acquired Insignia in October, 1998. There are currently a total of 53 limited
partners of your partnership and a total of 25 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the single
apartment property described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on October 5, 1983 for the purpose of owning
and operating a single apartment property located in Columbus, Ohio, known as
"Georgetown of Columbus Apartments." Your partnership's property consists of 150
apartment units. There are 9 one-bedroom apartments, 130 two-bedroom apartments,
10 three-bedroom apartments and 1 four-bedroom apartment. The total rentable
square footage of your partnership's property is 128,892 square feet. Your
partnership's property had an average occupancy rate of approximately 95.33% in
1996 and 95.33% in 1997. The average annual rent per apartment unit is
approximately $7,121.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1991, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $51,864, $55,922 and $28,257, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2026
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
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<PAGE> 1873
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $3,706,761, payable to FNMA, which bears interest at a rate of
7.60%. The mortgage debt is due in November 2002. Your partnership also has a
second mortgage note outstanding of $131,718, on the same terms as the current
mortgage note. Your partnership's agreement of limited partnership also allows
the general partner of your partnership to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
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<PAGE> 1874
Below is selected financial information for Georgetown of Columbus
Associates, L.P. taken from the financial statements described above. The 1994
and 1993 amounts have been derived from audited financial statements which are
not included as part of this Prospectus Supplement. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P.
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 24,777 $ 6,288 $ 15,001 $ 17,946 $ 60,760 $ 97,254 $ 51,437
Land & Building.............. 4,905,952 4,832,314 4,885,955 4,815,197 4,738,008 4,689,991 4,637,305
Accumulated Depreciation..... (3,422,788) (3,325,091) (3,373,939) (3,276,242) (3,184,173) (3,097,662) (3,018,629)
Other Assets................. 298,037 278,781 328,040 297,342 286,126 289,590 316,980
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 1,805,978 $ 1,792,292 $ 1,855,057 $ 1,854,243 $ 1,900,721 $ 1,979,173 $ 1,987,093
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS'
DEFICIT
Mortgage & Accrued
Interest................... $ 3,688,228 $ 3,771,102 $ 3,723,480 $ 3,813,563 $ 3,889,235 $ 3,958,582 $ 4,022,133
Other Liabilities............ 166,633 118,337 253,769 218,746 159,947 188,743 161,086
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... $ 3,854,861 $ 3,889,439 $ 3,977,249 $ 4,032,309 $ 4,049,182 $ 4,147,325 $ 4,183,219
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $(2,048,883) $(2,097,147) $(2,122,192) $(2,178,066) $(2,148,461) $(2,168,152) $(2,196,126)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P.
------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- ---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Rental Revenue......................... $529,428 $ 530,425 $1,077,470 $1,007,702 $ 964,312 $954,213 $ 929,778
Other Income........................... 31,472 20,466 43,093 38,203 44,771 33,406 33,191
-------- ---------- ---------- ---------- ---------- -------- ----------
Total Revenue................. $560,900 $ 550,891 $1,120,563 $1,045,905 $1,009,083 $987,619 $ 962,969
-------- ---------- ---------- ---------- ---------- -------- ----------
Operating Expenses..................... $208,409 $ 206,265 $ 506,823 $ 506,255 $ 420,214 $390,395 $ 453,825
General & Administrative............... 19,990 17,414 36,549 38,664 37,672 45,340 46,289
Depreciation........................... 48,849 48,849 97,697 92,069 96,487 83,469 222,595
Interest Expense....................... 164,465 151,529 335,895 350,280 356,345 362,732 367,717
Property Taxes......................... 45,878 45,915 87,725 88,242 78,674 77,709 77,847
-------- ---------- ---------- ---------- ---------- -------- ----------
Total Expenses................ $487,591 $ 469,972 $1,064,689 $1,075,510 $ 989,392 $959,645 $1,168,273
-------- ---------- ---------- ---------- ---------- -------- ----------
Net Income (Loss)............. $ 73,309 $ 80,920 $ 55,874 $ (29,605) $ 19,691 $ 27,974 $ (205,304)
======== ========== ========== ========== ========== ======== ==========
</TABLE>
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<PAGE> 1875
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $73,310 for the six months ended
June 30, 1998, compared to $80,920 for the six months ended June 30, 1997. The
decrease in net income of $7,610, or 9.40% was primarily the result of an
increase in operating expenses offset by an increase in total revenue. These
factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$560,900 for the six months ended June 30, 1998, compared to $550,891 for the
six months ended June 30, 1997, a increase of $10,009, or 1.82%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $208,409 for the
six months ended June 30, 1998, compared to $206,265 for the six months ended
June 30, 1997, an increase of $2,144 or 1.04%. Management expenses totaled
$28,257 for the six months ended June 30, 1998, compared to $27,941 for the six
months ended June 30, 1997, an increase of $316, or 1.13%.
General and Administrative Expenses
General and administrative expenses totaled $19,990 for the six months
ended June 30, 1998 compared to $17,414 for the six months ended June 30, 1997,
an increase of $2,576 or 14.79%. This increase was primarily due to an increase
in general partner reimbursements.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $164,465 for the six months ended June 30, 1998, compared to
$151,529 for the six months ended June 30, 1997, an increase of $12,936, or
8.54%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $55,874 for the year ended
December 31, 1997, compared to a net loss of $29,605 for the year ended December
31, 1996. The increase in net income of $ 85,479, or 288.73% was primarily the
result of increasing rental revenue while maintaining stable operating expenses.
These factors are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,120,563 for the year ended December 31, 1997, compared to $1,045,905 for the
year ended December 31, 1996, an increase of $74,658, or 7.14%. This increase
was primarily the result of an increase in occupancy and rental rates.
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<PAGE> 1876
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $506,823 for the
year ended December 31, 1997, compared to $506,255 for the year ended December
31, 1996, an increase of $568 or 0.11%. Management expenses totaled $55,922 for
the year ended December 31, 1997, compared to $51,864 for the year ended
December 31, 1996, an increase of $4,058, or 7.82%. The increase resulted from
an increase in rental revenues as management fees are calculated based on a
percentage of revenue.
General and Administrative Expenses
General and administrative expenses totaled $36,549 for the year ended
December 31, 1997 compared to $38,664 for the year ended December 31, 1996, a
decrease of $2,115 or 5.47%. The decrease was primarily due to decreased
training and travel expenses and decreased legal fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $335,895 for the year ended December 31, 1997, compared to
$350,280 for the year ended December 31, 1996, a decrease of $14,385, or 4.11%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $29,605 for the year ended
December 31, 1996, compared to a net income of $19,691 for the year ended
December 31, 1995. The decrease in net income of $49,296, or 250.35% was
primarily the result of an increase in operating expenses. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,045,905 for the year ended December 31, 1996, compared to $1,009,083 for the
year ended December 31, 1995, an increase of $36,822, or 3.65%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $506,255 for the
year ended December 31, 1996, compared to $420,214 for the year ended December
31, 1995, an increase of $86,041 or 20.48%. This increase was primarily the
result of an increase in property improvement costs. Management expenses totaled
$51,864 for the year ended December 31, 1996, compared to $50,789 for the year
ended December 31, 1995, an increase of $1,075, or 2.12%.
General and Administrative Expenses
General and administrative expenses totaled $38,664 for the year ended
December 31, 1996 compared to $37,672 for the year ended December 31, 1995, an
increase of $992 or 2.63%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $350,280 for the year ended December 31, 1996, compared to
$356,345 for the year ended December 31, 1995, a decrease of $6,065, or 1.70%.
S-75
<PAGE> 1877
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $24,777 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership will
not incur any liability to your partnership or any limited partner for any
mistakes or errors in judgment or for any acts or omission believed by the
general partner in good faith to be within the scope of authority conferred upon
it by your partnership agreement. As a result, unitholders might have a more
limited right of action in certain circumstances than they would have in the
absence of such a provision in your partnership's agreement of limited
partnership. The general partner of your partnership is owned by AIMCO. See
"Conflicts of Interest".
Your partnership will, to the extent permitted by law, indemnify and save
harmless the general partner against and from any personal loss, liability
(including attorneys' fees) or damage incurred by it as the result of any act or
omission in its capacity as general partner unless such loss, liability or
damage results from gross negligence or willful misconduct by the general
partner. As part of its assumption of liabilities in the consolidation, AIMCO
will indemnify the general partner of your partnership and their affiliates for
periods prior to and following the consolidation to the extent of the indemnity
under the terms of your partnership's agreement of limited partnership and
applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has not made a distribution within the last five years.
The original cost per unit was $25,510.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or
S-76
<PAGE> 1878
voting thereof, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $24,062
1995........................................................ 25,936
1996........................................................ 27,513
1997........................................................ 29,242
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995............................................ $50,789
1996............................................ 51,864
1997............................................ 55,922
1998 (through June 30).......................... 28,257
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the compensation paid to the property
manager or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
S-77
<PAGE> 1879
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Georgetown of Columbus Associates, L.P. at
December 31, 1997, 1996 and, 1995 and for the years then ended, appearing in
this Prospectus Supplement have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
S-78
<PAGE> 1880
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-7
Balance Sheets as of December 31, 1997 and 1996............. F-8
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1997 and 1996............ F-9
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-10
Notes to Financial Statements............................... F-11
Independent Auditors' Report................................ F-15
Balance Sheets as of December 31, 1996 and 1995............. F-16
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1996 and 1995............ F-17
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-18
Notes to Financial Statements............................... F-19
</TABLE>
F-1
<PAGE> 1881
GEORGETOWN OF COLUMBUS
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 24,777
Receivables and Deposits.................................... 27,795
Investments................................................. --
Restricted Escrows.......................................... 208,965
Other Assets................................................ 61,277
Investment Property:
Land...................................................... $ 340,190
Building and related personal property.................... 4,565,762
-----------
4,905,952
Less: Accumulated depreciation............................ (3,422,788) 1,483,164
----------- -----------
Total Assets:..................................... $ 1,805,978
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 26,772
Other Accrued Liabilities................................... 79,209
Property Taxes Payable...................................... 45,878
Tenant Security Deposits.................................... 27,118
Notes Payable............................................... 3,675,884
Partners' Capital........................................... (2,048,883)
-----------
Total Liabilities and Partners' Capital........... $ 1,805,978
===========
</TABLE>
See the notes to the interim financial statements.
F-2
<PAGE> 1882
GEORGETOWN OF COLUMBUS
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $529,428 $530,425
Other Income.............................................. 31,472 20,466
-------- --------
Total Revenues:................................... 560,900 550,891
Expenses:
Operating Expenses........................................ 208,409 206,265
General and Administrative Expenses....................... 19,990 17,414
Depreciation Expense...................................... 48,849 48,848
Interest Expense.......................................... 164,465 151,529
Property Tax Expense...................................... 45,878 45,915
-------- --------
Total Expenses:................................... 487,591 469,971
Net Income........................................ $ 73,309 $ 80,920
======== ========
</TABLE>
F-3
<PAGE> 1883
GEORGETOWN OF COLUMBUS
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ 73,309 $ 80,920
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 66,126 48,848
Changes in accounts:
Receivables and deposits and other assets............ 73,865 28,010
Accounts Payable and accrued expenses................ (74,792) (87,710)
-------- --------
Net cash provided by (used in) operating
activities....................................... 138,508 70,068
-------- --------
Investing Activities:
Property improvements and replacements.................... (19,997) (17,118)
Net (increase)/decrease in restricted escrows............. (49,234) (9,448)
-------- --------
Net cash provided by (used in) investing
activities....................................... (69,231) (26,566)
-------- --------
Financing Activities:
Payments on mortgage...................................... (59,501) (55,160)
-------- --------
Net cash provided by (used in) financing
activities....................................... (59,501) (55,160)
-------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 9,776 (11,658)
Cash and cash equivalents at beginning of year............ 15,001 17,946
-------- --------
Cash and cash equivalents at end of period................ $ 24,777 $ 6,288
======== ========
</TABLE>
F-4
<PAGE> 1884
GEORGETOWN OF COLUMBUS
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Burgundy Court Limited
as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
NOTE B -- SUBSEQUENT EVENT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-5
<PAGE> 1885
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-6
<PAGE> 1886
INDEPENDENT AUDITORS' REPORT
General Partners
Georgetown of Columbus Associates, Limited:
We have audited the accompanying balance sheets of Georgetown of Columbus
Associates, Limited as of December 31, 1997 and 1996, and the related statements
of operations and changes in partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Georgetown of Columbus
Associates, Limited as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
February 26, 1998
F-7
<PAGE> 1887
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 15,001 $ 17,946
Receivables and deposits.................................... 96,733 67,832
Restricted escrows (Note B)................................. 159,731 153,166
Other assets................................................ 71,576 76,344
Investment properties (Note C):
Land...................................................... 340,190 340,190
Buildings and related personal property................... 4,545,765 4,475,007
----------- -----------
4,885,955 4,815,197
Less accumulated depreciation............................. (3,373,939) (3,276,242)
----------- -----------
1,512,016 1,538,955
----------- -----------
$ 1,855,057 $ 1,854,243
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable (Note D)................................. $ 111,398 $ 75,737
Tenant security deposit liabilities....................... 29,758 28,778
Accrued taxes............................................. 87,386 87,458
Other liabilities......................................... 25,227 26,773
Mortgage notes payable (Note C)........................... 3,723,480 3,813,563
Partners' deficit........................................... (2,122,192) (2,178,066)
----------- -----------
$ 1,855,057 $ 1,854,243
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-8
<PAGE> 1888
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,077,470 $ 1,007,702
Other income.............................................. 43,093 38,203
----------- -----------
Total revenues.................................... 1,120,563 1,045,905
----------- -----------
Expenses:
Operating (Note D)........................................ 506,823 506,255
General and administrative (Note D)....................... 36,549 38,664
Depreciation.............................................. 97,697 92,069
Interest.................................................. 335,895 350,280
Property taxes............................................ 87,725 88,242
----------- -----------
Total expenses.................................... 1,064,689 1,075,510
----------- -----------
Net income (loss)........................................... 55,874 (29,605)
Partners' deficit at beginning of year...................... (2,178,066) (2,148,461)
----------- -----------
Partners' deficit at end of year............................ $(2,122,192) $(2,178,066)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-9
<PAGE> 1889
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 55,874 $ (29,605)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 97,697 92,069
Amortization of discounts, loan costs and other
deferred costs........................................ 35,322 41,477
Change in accounts:
Receivables and deposits............................. (28,901) 5,306
Other assets......................................... (8,187) --
Accounts payable..................................... 35,661 48,229
Tenant security deposit liabilities.................. 980 (2,172)
Accrued taxes........................................ (72) 9,681
Other liabilities.................................... (1,546) 3,061
--------- ---------
Net cash provided by operating activities......... 186,828 168,046
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (70,758) (77,189)
Deposits to restricted escrows............................ (6,565) (6,505)
Receipts from restricted escrows.......................... -- 7,617
--------- ---------
Net cash used in investing activities............. (77,323) (76,077)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (112,450) (104,245)
--------- ---------
Net cash used in financing activities............. (112,450) (104,245)
--------- ---------
Net decrease in cash and cash equivalents................... (2,945) (12,276)
Cash and cash equivalents at beginning of year.............. 17,946 30,222
--------- ---------
Cash and cash equivalents at end of year.................... $ 15,001 $ 17,946
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 300,929 $ 309,134
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
F-10
<PAGE> 1890
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Georgetown of Columbus Associates, Limited (the "Partnership") was
organized as a limited partnership under the laws of the State of Delaware
pursuant to a Limited Partnership Agreement and Certificate of Limited
Partnership dated October 13, 1983. The Partnership owns and operates a 150 unit
apartment complex, Georgetown of Columbus Apartments, in Columbus, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group ("Insignia"). The property is managed by
Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 10 to 25 years and the personal
property assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1997 and 1996 include deferred loan costs of
$63,389 and $76,344, respectively, which are amortized over the term of the
related borrowing. Deferred loan costs are presented net of accumulated
amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
F-11
<PAGE> 1891
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no impact on net loss or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. $159,731 $153,166
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$33,614, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $3,766,261 $3,878,711
Second mortgage note payable in interest only monthly
installments of $834, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 131,718 131,718
---------- ----------
Principal balances at year end.............................. 3,897,979 4,010,429
Less unamortized discount................................... (174,499) (196,866)
---------- ----------
$3,723,480 $3,813,563
========== ==========
</TABLE>
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 121,300
1999..................................................... 130,846
2000..................................................... 141,141
2001..................................................... 152,253
2002..................................................... 3,352,439
----------
$3,897,979
==========
</TABLE>
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of prepayment or the present value of the excess of interest
which would be incurred at the stated rate under the notes over the interest
which would be incurred at the Treasury constant maturity for U.S. Government
obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
F-12
<PAGE> 1892
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions and balances with the Managing General Partner and its
affiliates for the years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- ------- -------
<S> <C> <C>
Management fee.............................................. $55,922 $51,864
Partnership administration fee.............................. $12,510 $10,020
Reimbursement for services of affiliates.................... $16,582 $16,703
Reimbursement for construction oversight costs.............. $ 150 $ 790
Payable to Insignia Residential Group....................... $36,602 $ 7,510
</TABLE>
F-13
<PAGE> 1893
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-14
<PAGE> 1894
INDEPENDENT AUDITORS' REPORT
General Partners
Georgetown of Columbus Associates, Limited:
We have audited the accompanying balance sheets of Georgetown of Columbus
Associates, Limited as of December 31, 1996 and 1995, and the related statements
of operations and changes in partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Georgetown of Columbus
Associates, Limited as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 6, 1997
F-15
<PAGE> 1895
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 17,946 $ 30,222
Restricted -- tenant security deposits.................... 28,778 30,538
Accounts receivable......................................... 1,172 192
Escrow for taxes............................................ 37,882 42,408
Restricted escrows (Note B)................................. 153,166 154,278
Other assets................................................ 76,344 89,248
Investment properties (Note C):
Land...................................................... 340,190 340,190
Buildings and related personal property................... 4,475,007 4,397,818
----------- -----------
4,815,197 4,738,008
Less accumulated depreciation............................. (3,276,242) (3,184,173)
----------- -----------
1,538,955 1,553,835
----------- -----------
$ 1,854,243 $ 1,900,721
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 75,737 $ 27,508
Tenant security deposits.................................. 28,778 30,950
Accrued taxes............................................. 87,458 77,777
Other liabilities......................................... 26,773 23,712
Mortgage notes payable (Note C)........................... 3,813,563 3,889,235
Partners' deficit........................................... (2,178,066) (2,148,461)
----------- -----------
$ 1,854,243 $ 1,900,721
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-16
<PAGE> 1896
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,007,702 $ 964,312
Other income.............................................. 38,203 44,771
----------- -----------
Total revenues.................................... 1,045,905 1,009,083
----------- -----------
Expenses:
Operating (Note D)........................................ 357,814 325,836
General and administrative (Note D)....................... 38,664 37,672
Maintenance............................................... 148,441 94,378
Depreciation.............................................. 92,069 96,487
Interest.................................................. 350,280 356,345
Property taxes............................................ 88,242 78,674
----------- -----------
Total expenses.................................... 1,075,510 989,392
----------- -----------
Net (loss) income........................................... (29,605) 19,691
Partners' deficit at beginning of year...................... (2,148,461) (2,168,152)
----------- -----------
Partners' deficit at end of year............................ $(2,178,066) $(2,148,461)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-17
<PAGE> 1897
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income......................................... $ (29,605) $ 19,691
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation........................................... 92,069 96,487
Amortization of discounts, loan costs and other
deferred costs........................................ 41,477 50,172
Change in accounts:
Restricted cash...................................... 1,760 690
Accounts receivable.................................. (980) (192)
Escrow for taxes..................................... 4,526 1,657
Accounts payable..................................... 48,229 20,903
Tenant security deposit liabilities.................. (2,172) (2,985)
Accrued taxes........................................ 9,681 1,000
Other liabilities.................................... 3,061 (47,714)
--------- --------
Net cash provided by operating activities......... 168,046 139,709
--------- --------
Cash flows from investing activities:
Property improvements and replacements.................... (77,189) (57,993)
Deposits to restricted escrows............................ (6,505) (31,974)
Receipts from restricted escrows.......................... 7,617 11,093
--------- --------
Net cash used in investing activities............. (76,077) (78,874)
--------- --------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (104,245) (96,639)
--------- --------
Net cash used in financing activities............. (104,245) (96,639)
--------- --------
Net decrease in cash and cash equivalents................... (12,276) (35,804)
Cash and cash equivalents at beginning of year.............. 30,222 66,026
--------- --------
Cash and cash equivalents at end of year.................... $ 17,946 $ 30,222
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 309,134 $316,740
========= ========
</TABLE>
See Accompanying Notes to Financial Statements
F-18
<PAGE> 1898
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Georgetown of Columbus Associates, Limited (the "Partnership") was
organized as a limited partnership under the laws of the State of Delaware
pursuant to a Limited Partnership Agreement and Certificate of Limited
Partnership dated October 13, 1983. The Partnership owns and operates a 150 unit
apartment complex, Georgetown of Columbus Apartments, in Columbus, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group ("Insignia"). The property is managed by
Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 10 to 25 years and the personal
property assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1996 and 1995 consist of deferred loan costs
which are amortized over the term of the related borrowing. Deferred loan costs
are presented net of accumulated amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation. These reclassifications had no impact on net loss or partners'
deficit as previously reported.
F-19
<PAGE> 1899
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. $153,166 $154,278
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$33,614, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $3,878,711 $3,982,956
Second mortgage note payable in interest only monthly
installments of $834, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 131,718 131,718
---------- ----------
Principal balances at year end.............................. 4,010,429 4,114,674
Less unamortized discount................................... (196,866) (225,439)
---------- ----------
$3,813,563.. $3,889,235
========== ==========
</TABLE>
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 112,449
1998..................................................... 121,300
1999..................................................... 130,846
2000..................................................... 141,141
2001..................................................... 152,253
Thereafter............................................... 3,352,440
----------
$4,010,429
==========
</TABLE>
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to November 15, 1997. Thereafter the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of prepayment or the present value of the excess
of interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
F-20
<PAGE> 1900
GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Transactions with the Managing General Partner and its affiliates for the
years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- ------- -------
<S> <C> <C>
Management fee.............................................. $51,864 $50,789
Partnership administration fee.............................. $10,020 $10,096
Reimbursement for services of affiliates.................... $16,703 $15,840
Reimbursement for construction oversight costs.............. $ 790 $ --
</TABLE>
F-21
<PAGE> 1901
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 1902
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 1903
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 1904
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
LA COLINA PARTNERS, LTD.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STRANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 1905
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-13
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-16
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-17
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of La Colina
Partners, Ltd.............................. S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-61
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66
CONFLICTS OF INTEREST.......................... S-70
Conflicts of Interest with Respect to the
Offer...................................... S-70
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-70
Competition Among Properties................. S-70
Features Discouraging Potential Takeovers.... S-70
Future Exchange Offers....................... S-70
YOUR PARTNERSHIP............................... S-71
General...................................... S-71
Your Partnership and its Property............ S-71
</TABLE>
i
<PAGE> 1906
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Property Management.......................... S-71
Investment Objectives and Policies; Sale or
Financing of Investments................... S-71
Capital Replacement.......................... S-72
Borrowing Policies........................... S-72
Competition.................................. S-72
Legal Proceedings............................ S-72
Selected Financial Information............... S-72
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-74
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-76
Distributions and Transfers of Units......... S-76
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial Ownership of Interests in Your
Partnership................................ S-77
Compensation Paid to the General Partner and
its Affiliates............................. S-77
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-77
LEGAL MATTERS.................................. S-78
EXPERTS........................................ S-78
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 1907
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in La
Colina Partners, Ltd. For each unit that you tender, you may choose to
receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and
Puerto Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million,
total debt of $1,314 million and stockholders' equity of $1,394 million. On
a pro forma basis, giving effect to our recently completed merger with
Insignia Financial Group, Inc. and related transactions, as of June 30,
1998, AIMCO had total assets of $3,972 million, total debt of $1,626
million and stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner (the "general partner") of
your partnership and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 1908
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
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<PAGE> 1909
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $385 per unit for the year ended
December 31, 1997. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis). This is
equivalent to a distribution of $ per year on the number of
Tax-Deferral % Preferred OP Units, or distributions of $ per year on
the number of Tax-Deferral Common OP Units, that would receive in an
exchange of your partnership units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
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<PAGE> 1910
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
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<PAGE> 1911
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
S-5
<PAGE> 1912
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
S-6
<PAGE> 1913
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit date compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
S-7
<PAGE> 1914
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
S-8
<PAGE> 1915
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
S-9
<PAGE> 1916
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service revised its outlook for the ratings of AIMCO from
stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
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<PAGE> 1917
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland
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corporation, we are subject to various Maryland laws which may have the effect
of discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if our acquisition would be in our
stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently do not own any limited partnership interest in
your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner expects to
result from the offer. For example, a partner of your partnership would
have no opportunity for liquidity unless he were to sell his units in a
private
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transaction. Any such sale would likely be at a very substantial discount
from the partner's pro rata share of the fair market value of your
partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any
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combination of such forms of consideration for your units. The offer is
made upon the terms and subject to the conditions set forth in this Prospectus
Supplement, the accompanying Prospectus and the accompanying Letter of
Transmittal, including the instructions thereto, as the same may be supplemented
or amended from time to time (the "Letter of Transmittal"). To be eligible to
receive Tax-Deferral % Preferred OP Units, Tax-Deferral Common OP Units or
cash pursuant to the offer, you must validly tender and not withdraw your units
on or prior to the Expiration Date. For administrative purposes, the transfer of
units tendered pursuant to the offer will be deemed to take effect as of
, 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
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Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
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VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
- ---------------
(1) As of June 30, 1998
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a
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number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Consideration to Other Values. In evaluating the offer,
your general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, unlike the AIMCO Operating Partnership's agreement of limited
partnership, your partnership's agreement of limited partnership does not limit
the liability of the general partners to your partnership or the limited
partner.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment,
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voting rights, distributions and liquidity and transferability/redemption. For
example, unlike the AIMCO OP Units, you have no redemption rights with respect
to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual management fee equal to the greater of an amount equal to 7.5% of the Net
Cash Flow or $10,000, payable monthly in addition to reimbursement for expenses
generated in its capacity as general partner. The property manager received
management fees of $80,878 in 1996, $83,502 in 1997 and $44,072 for the first
six months of 1998. We have no current intention of changing the fee structure
for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. La Colina Partners, Ltd. is a California
limited partnership which was formed on January 1, 1993 for the purpose of
owning and operating a single apartment property located in Denton, Texas, known
as "La Colina Ranch Apartments." In 1983, it completed a private placement of
units that raised net proceeds of approximately $2,548,000. La Colina Ranch
Apartments consists of 264 apartment units. Your partnership has no employees.
Property Management. Since November 1992, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new
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properties. Your partnership will terminate on December 31, 2023, unless earlier
dissolved. Your general partner has no present intention to liquidate, sell,
finance or refinance your partnership's property within any specified time
period. An investment in your partnership is a finite life investment in which
partners receive regular cash distributions out of your partnership's
distributable cash flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $5,014,155, payable to FNMA, which bears
interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your
partnership also has a second mortgage note outstanding of $163,710, on the same
terms as the current mortgage note. Your partnership's agreement of limited
partnership also allows your general partner to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
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FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 1927
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 1928
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 1929
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 1930
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 1931
SUMMARY FINANCIAL INFORMATION OF LA COLINA PARTNERS, LTD.
The summary financial information of La Colina Partners, Ltd. for the six
months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for La Colina Partners, Ltd. for the years ended December 31, 1997,
1996, 1995 and 1994 is based on audited financial statements. This information
should be read in conjunction with such financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Your Partnership" included herein. See "Index to
Financial Statements."
LA COLINA PARTNERS, LTD.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............... 878,535 857,460 1,733,765 1,681,643 2,152,848 1,561,608 1,425,575
Net Income/(Loss)............ 195,627 188,035 285,242 120,051 806,726 87,132 (620,205)
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation... 906,786 856,285 878,987 750,950 710,040 644,806 667,557
Total Assets................. 2,260,764 2,776,909 2,197,691 2,717,450 2,555,792 1,926,152 1,799,221
Mortgage Notes Payable,
including Accrued
Interest................... 5,117,342 5,175,045 5,152,338 5,747,001 5,796,983 5,841,983 5,901,227
Partners'
Capital/(Deficit).......... (3,056,121) (3,328,955) (3,251,748) (3,516,990) (3,636,041) (4,238,073) (4,325,205)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per Common OP Unit and
historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding..................... $ 1.125 $1.85 $0.00 $385
</TABLE>
S-25
<PAGE> 1932
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly,
although there can be no assurance, you might receive more consideration if you
do not tender your units and, instead, continue to hold your units and
ultimately receive proceeds from a liquidation of your partnership. However, you
may prefer to receive our offer consideration now rather than wait for uncertain
future net liquidation proceeds. Furthermore, your general partner has no
present intention to liquidate your partnership, and your partnership's
agreement of limited partnership does not require a sale of your partnership's
property by any particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
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LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or
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Common OP Units may be redeemed for shares of Class I Preferred Stock or Class A
Common Stock. Furthermore, the liquidity of the Class I Preferred Stock and the
Class A Common Stock at the time at which OP Units may be redeemed is also
uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Based on anticipated annualized distributions of
$ with respect to the Preferred OP Units, current annualized distributions
with respect to the Common OP Units of $2.25, and the 1998 distributions of
$0.00 with respect to your units, distributions with respect to the Preferred OP
Units and Common OP Units that we are offering are expected to be ,
immediately following our offer, than the distributions with respect to your
units. See "Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that
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AIMCO's access to the public markets may prove challenging in light of the
volatility in both the equity and capital markets for REITs. Moody's assigned a
"ba3" rating to the Class I Preferred Stock proposed to be issued by AIMCO, and
confirmed its previous ratings related to AIMCO's preferred stock and debt in
its shelf registration statement. Moody's indicated that its rating action
continues to reflect AIMCO's increasing leveraged profile, including high levels
of secured debt and preferred stock, limited financial flexibility and
integration risks resulting from the merger with Insignia. Moody's also noted
AIMCO's high level of encumbered properties and material investments in loans to
highly leveraged partnerships in which AIMCO owns a general partnership
interest. At the same time, Moody's confirmed its existing rating on AIMCO's
existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
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Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
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- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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<PAGE> 1938
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY
DELAY IN MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened instituted, or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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<PAGE> 1948
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
S-43
<PAGE> 1950
Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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<PAGE> 1951
DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
S-45
<PAGE> 1952
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
S-46
<PAGE> 1953
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
S-47
<PAGE> 1954
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
S-48
<PAGE> 1955
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
S-49
<PAGE> 1956
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
S-50
<PAGE> 1957
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
S-51
<PAGE> 1958
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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<PAGE> 1959
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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<PAGE> 1960
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
S-54
<PAGE> 1961
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Based on anticipated annualized distributions of $ with respect
to the Preferred OP Units, current annualized distributions of $ with
respect to the Common OP Units and the 1998 distributions of $385 with
respect to your units, distributions with respect to the Preferred OP Units
and Common OP Units being offered are expected to be , immediately
following the offer, than the distributions with respect to your units.
This is equivalent to a distribution of $ per year on the number of
Tax-Deferral % Preferred OP Units, or distributions of $ per year on
the number of Tax-Deferral Common OP Units, that would receive in an
exchange of your partnership units. See "Comparison of Ownership of Your
Units and AIMCO OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment
S-55
<PAGE> 1962
properties although there are other ways to value real estate. A
liquidation in the future might generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
S-56
<PAGE> 1963
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
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<PAGE> 1964
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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<PAGE> 1965
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning,
S-59
<PAGE> 1966
among other things, any environmental liabilities, deferred maintenance and
estimated capital expenditure and replacement reserve requirements, the
determination and valuation of non-real estate assets and liabilities of your
partnership, the allocation of your partnership's net values between the general
partner, special limited partner and limited partners of your partnership, the
terms and conditions of any debt encumbering the partnership's property, and the
transaction costs and fees associated with a sale of the property. Stanger also
relied upon the assurance of your partnership, AIMCO, and the management of the
partnership's property that any financial statements, budgets, pro forma
statements, projections, capital expenditure estimates, debt, value estimates
and other information contained in this Prospectus Supplement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
S-60
<PAGE> 1967
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under California law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing La Colina Ranch Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Net Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2023. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to be the sole limited The purpose of the AIMCO Operating Partnership is to
partner of La Colina Ranch Apartments, Ltd., a limited conduct any business that may be lawfully conducted by
partnership, which will acquire, complete construction a limited partnership organized pursuant to the
of and hold your partnership's property. Subject to Delaware Revised Uniform Limited Partnership Act (as
restrictions contained in your partnership's agreement amended from time to time, or any successor to such
of limited partnership, your partnership may do all statute) (the "Delaware Limited Partnership Act"),
things necessary for or incidental to the protection provided that such business is to be conducted in a
and benefit of your partnership, including, without manner that permits AIMCO to be qualified as a REIT,
limitation, borrowing funds and creating liens. unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
S-61
<PAGE> 1968
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 200 units for cash time to the limited partners and to other persons, and
and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital
of limited partnership. In addition, the managing contributions as may be established by the general
general has the authority to increase the number of partner in its sole discretion. The net capital
units. The partnership may not issue senior securities contribution need not be equal for all OP Unitholders.
nor issue units for property other than cash or cash No action or consent by the OP Unitholders is required
and notes. The capital contribution need not be equal in connection with the admission of any additional OP
for all limited partners and no action or consent is Unitholder. See "Description of OP Units -- Management
required in connection with the admission of any by the AIMCO GP" in the accompanying Prospectus.
additional limited partners. Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The general partner of your partnership may enter into The AIMCO Operating Partnership may lend or contribute
agreements with any of its affiliates; provided that funds or other assets to its subsidiaries or other
such agreements must contain terms reasonably persons in which it has an equity investment, and such
competitive with those which may be obtained from persons may borrow funds from the AIMCO Operating
independent third parties. The general partner may also Partnership, on terms and conditions established in the
lend money to your partnership as needed with interest sole and absolute discretion of the general partner. To
charged at the rate of the lesser of the maximum rate the extent consistent with the business purpose of the
permitted under the laws of California or the prime AIMCO Operating Partnership and the permitted
rate then being charged for short-term commercial loans activities of the general partner, the AIMCO Operating
by Bank of America N.T. & S.A. plus 3%. Partnership may transfer assets to joint ventures,
limited liability companies, partnerships,
corporations, business trusts or other business
entities in which it is or thereby becomes a
participant upon such terms and subject to such
conditions consistent with the AIMCO Operating Part-
nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized, The AIMCO Operating Partnership Agreement contains no
on behalf of your partnership, to borrow funds, execute restrictions on borrowings, and the general partner has
and issue mortgage notes and other evidences of full power and authority to borrow money on behalf of
indebtedness and secure such indebtedness by mortgage, the AIMCO Operating Partnership. The AIMCO Operating
deed of trust, pledge or other lien. Partnership has credit agreements that restrict, among
other things, its ability to incur indebtedness. See
"Risk Factors -- Risks of Significant Indebtedness" in
the accompanying Prospectus.
</TABLE>
S-62
<PAGE> 1969
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners or their duly authorized with a statement of the purpose of such demand and at
representative to review the books and records of your such OP Unitholder's own expense, to obtain a current
partnership upon reasonable notice at reasonable times list of the name and last known business, residence or
at the location where such records are kept by your mailing address of the general partner and each other
partnership. OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has complete All management powers over the business and affairs of
discretion in the management and control of the the AIMCO Operating Partnership are vested in AIMCO-GP,
business of your partnership for the purposes stated in Inc., which is the general partner. No OP Unitholder
your partnership's agreement of limited partnership, has any right to participate in or exercise control or
makes all decisions affecting the business of your management power over the business and affairs of the
partnership and manages and controls the affairs of AIMCO Operating Partnership. The OP Unitholders have
your partnership. No limited partner may take part in the right to vote on certain matters described under
the management of the business of your partnership, "Comparison of Ownership of Your Units and AIMCO OP
transact any business of your partnership or have the Units -- Voting Rights" below. The general partner may
power to sign for or to bind your partnership to any not be removed by the OP Unitholders with or without
agreement or document. cause.
In addition to the powers granted a general partner of
a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Notwithstanding anything to the contrary set forth in
does not limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general
your partnership or any limited partners for acts done partner is not liable to the AIMCO Operating
in their capacity as general partner. However, under Partnership for losses sustained, liabilities incurred
your partnership's agreement of limited partnership, or benefits not derived as a result of errors in
the general partners of your partnership are judgment or mistakes of fact or law of any act or
indemnified for any loss or damage, including legal omission if the general partner acted in good faith.
fees and expenses and amounts paid in settlement, The AIMCO Operating Partnership Agreement provides for
incurred by such parties by reason of any act performed indemnification of AIMCO, or any director or officer of
or omitted by such parties on behalf of your AIMCO (in its capacity as the previous general partner
partnership or in furtherance of your partnership's of the AIMCO Operating Partnership), the general
interest, provided that the party sued will not be partner, any officer or director of general partner or
entitled to indemnification for losses sustained by the AIMCO Operating Partnership and such other persons
reason of their gross negligence, willful misconduct or as the general partner may designate from and against
breach of fiduciary obligations. all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
S-63
<PAGE> 1970
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove the has exclusive management power over the business and
general partner upon a vote of all of the limited affairs of the AIMCO Operating Partnership. The general
partners. The general partner may resign upon 90 days partner may not be removed as general partner of the
notice with the consent of the remaining general AIMCO Operating Partnership by the OP Unitholders with
partner; provided, the remaining general partner is or without cause. Under the AIMCO Operating Partnership
qualified to act as such and has sufficient net worth Agreement, the general partner may, in its sole
to meet the requirements of the tax code. The general discretion, prevent a transferee of an OP Unit from
partner may add another person as general partner becoming a substituted limited partner pursuant to the
pursuant to the consent granted by the limited partners AIMCO Operating Partnership Agreement. The general
in your partnership's agreement of limited partnership. partner may exercise this right of approval to deter,
The affirmative vote or written consent of holders of delay or hamper attempts by persons to acquire a
more than 50% of the units is required for the general controlling interest in the AIMCO Operating Partner-
partner to substitute another in its place. The limited ship. Additionally, the AIMCO Operating Partnership
partners owning 100% of the limited partnership Agreement contains restrictions on the ability of OP
interests then outstanding may elect another person as Unitholders to transfer their OP Units. See
additional or substitute general partner without the "Description of OP Units -- Transfers and Withdrawals"
consent of the existing general partner. A limited in the accompanying Prospectus.
partner may not transfer its units without the consent
of the general partner which may be withheld in sole
and absolute discretion of the managing general
partner.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth
partnership may be proposed by the general partner of in the AIMCO Operating Partnership Agreement, whereby
your partnership or by limited partners owning at least the general partner may, without the consent of the OP
10% of the then outstanding limited partnership Unitholders, amend the AIMCO Operating Partnership
interests. Approval by a majority of the then Agreement, amendments to the AIMCO Operating
outstanding limited partnership interests is necessary Partnership Agreement require the consent of the
to effect an amendment to your partnership's agreement holders of a majority of the outstanding Common OP
of limited partnership, except that any proposal Units, excluding AIMCO and certain other limited
requiring a greater affirmative vote for the matter exclusions (a "Majority in Interest"). Amendments to
addressed also requires such greater affirmative vote the AIMCO Operating Partnership Agreement may be
for enactment. In addition, the general partner may proposed by the general partner or by holders of a
amend your partnership's agreement of limited Majority in Interest. Following such proposal, the
partnership from time to time to add representations, general partner will submit any proposed amendment to
duties or obligation of the general partner or to the OP Unitholders. The general partner will seek the
surrender rights granted to the general partner, cure written consent of the OP Unitholders on the proposed
any ambiguity or make modifications required by state amendment or will call a meeting to vote thereon. See
or Federal securities law. Notwithstanding the "Description of OP Units -- Amendment of the AIMCO
foregoing, certain provisions of your partnership's Operating Partnership Agreement" in the accompanying
agreement of limited partnership are not subject to Prospectus.
amendment in any case.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives an annual management fee equal to the greater capacity as general partner of the AIMCO Operating
of an amount equal to 7.5% of the Net Cash Flow or Partnership. In addition, the AIMCO Operating Part-
$10,000, payable monthly in addition to other fees for nership is responsible for all expenses incurred
additional services. Moreover, the general partner or relating to the AIMCO Operating Partnership's ownership
certain affiliates may be entitled to compensation for of its assets and the operation of the AIMCO Operating
additional services rendered. Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
S-64
<PAGE> 1971
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
No limited partner is subject to assessment, nor is any Except for fraud, willful misconduct or gross
limited partner personally liable for any of the debts negligence, no OP Unitholder has personal liability for
of your partnership or any of losses except to the the AIMCO Operating Partnership's debts and
extent of its capital contributions which have become obligations, and liability of the OP Unitholders for
payable pursuant to your partnership's agreement of the AIMCO Operating Partnership's debts and obligations
limited partnership. is generally limited to the amount of their invest-
ment in the AIMCO Operating Partnership. However, the
limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner of your partnership must manage and Unless otherwise provided for in the relevant
control the affairs of your partnership to the best of partnership agreement, Delaware law generally requires
its ability and use its best efforts to carry out the a general partner of a Delaware limited partnership to
purposes of your partnership. The general partner must adhere to fiduciary duty standards under which it owes
diligently and faithfully devote such of its time to its limited partners the highest duties of good faith,
the business of your partnership and has fiduciary fairness and loyalty and which generally prohibit such
responsibility for the safekeeping and use of all funds general partner from taking any action or engaging in
and assets of your partnership and cannot employ or any transaction as to which it has a conflict of
permit another to employ such funds or assets in a interest. The AIMCO Operating Partnership Agreement
manner except for the exclusive benefit of your expressly authorizes the general partner to enter into,
partnership. However, the general partner may engage or on behalf of the AIMCO Operating Partnership, a right
hold interest in other business ventures of every kind of first opportunity arrangement and other conflict
and description, including ventures in competition with avoidance agreements with various affiliates of the
your partnership, in which neither your partnership nor AIMCO Operating Partnership and the general partner, on
any limited partners will have any interest. such terms as the general partner, in its sole and
absolute discretion, believes are advisable. The AIMCO
Operating Partnership Agreement expressly limits the
liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-65
<PAGE> 1972
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders
partners have voting rights only Operating Partnership Agreement, have voting rights only with
with respect to the following the holders of the Preferred OP respect to certain limited matters
issues: the sale of or other dispo- Units will have the same voting such as certain amendments and
sition of all or substantially all rights as holders of the Common OP termination of the AIMCO Operating
of the assets of your partnership, Units. See "Description of OP Partnership Agreement and certain
the sale of your partnership's Units" in the accompanying transactions such as the
interest in La Colina Ranch Prospectus. So long as any institution of bankruptcy
Apartments Ltd. to any general Preferred OP Units are outstand- proceedings, an assignment for the
partner, a limited partner or any ing, in addition to any other vote benefit of creditors and certain
of their affiliates, any amendments or consent of partners required by transfers by the general partner of
to your partnership's agreement of law or by the AIMCO Operating its interest in the AIMCO Operating
limited partnership, except Partnership Agree- Part-
</TABLE>
S-66
<PAGE> 1973
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
in certain circumstances, the ment, the affirmative vote or nership or the admission of a
termination of your partnership, consent of holders of at least 50% successor general partner.
the removal of a general partner, of the outstanding Preferred OP
the substitution of a general Units will be necessary for Under the AIMCO Operating Partner-
partner and the substitution or effecting any amendment of any of ship Agreement, the general partner
addition of a general partner the provisions of the Partnership has the power to effect the
absent approval by the remaining Unit Designation of the Preferred acquisition, sale, transfer,
general partner. Each matter OP Units that materially and exchange or other disposition of
requires the approval of holders of adversely affects the rights or any assets of the AIMCO Operating
a majority of the outstanding preferences of the holders of the Partnership (including, but not
units, except that the removal of a Preferred OP Units. The creation or limited to, the exercise or grant
general partner and the election of issuance of any class or series of of any conversion, option,
a substitute or additional gen- partnership units, including, privilege or subscription right or
eral partner without the consent of without limitation, any partner- any other right available in
the existing general partner ship units that may have rights connection with any assets at any
requires the unanimous consent of senior or superior to the Preferred time held by the AIMCO Operating
all limited partners. OP Units, shall not be deemed to Partnership) or the merger,
materially adversely affect the consolidation, reorganization or
The general partner may cause the rights or preferences of the other combination of the AIMCO
dissolution of your partnership by holders of Preferred OP Units. With Operating Partnership with or into
retiring unless, the remaining respect to the exercise of the another entity, all without the
general partner, or if none, more above described voting rights, each consent of the OP Unitholders.
than 50% of the holders of the then Preferred OP Units shall have one
outstanding units consent within (1) vote per Preferred OP Unit. The general partner may cause the
sixty days after the retirement to dissolution of the AIMCO Operating
continue your partnership and elect Partnership by an "event of
a successor general partner. withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
The distributions payable to the $ per Preferred OP Unit; tribute quarterly all, or such
partners are not fixed in amount provided, however, that at any time portion as the general partner may
and depend upon the operating and from time to time on or after in its sole and absolute discretion
results and net sales or the fifth anniversary of the issue determine, of Available Cash (as
refinancing proceeds available from date of the Preferred OP Units, the defined in the AIMCO Operating
the disposition of your AIMCO Operating Partnership may Partnership Agreement) generated by
partnership's assets. The general adjust the annual distribution rate the AIMCO Operating Partnership
partner will designate a record on the Preferred OP Units to the during such quarter to the general
date to determine the partners lower of (i) % plus the annual partner, the special limited
entitled to cash distributions, interest rate then applicable to partner and the holders of Common
which is not less than five days U.S. Treasury notes with a maturity OP Units on the record date
nor more than thirty days before of five years, and (ii) the annual established by the general partner
each cash distribution. Your dividend rate on the most recently with respect to such quarter, in
partnership has made distributions issued AIMCO non-convertible accordance with their respective
in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating
make distributions in 1998. parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
S-67
<PAGE> 1974
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may not transfer There is no public market for the There is no public market for the
or assign any or any portion of his Preferred OP Units and the OP Units. The AIMCO Operating Part-
interest in his limited partnership Preferred OP Units are not listed nership Agreement restricts the
interest unless the general partner on any securities exchange. The transferability of the OP Units.
consents (which consent may be Preferred OP Units are subject to Until the expiration of one year
withheld at the sole discretion of restrictions on transfer as set from the date on which an OP
the general partner) and the forth in the AIMCO Operating Unitholder acquired OP Units,
limited partner complies with Partnership Agreement. subject to certain exceptions, such
applicable state and Federal OP Unitholder may not transfer all
securities laws. Notwithstanding Pursuant to the AIMCO Operating or any portion of its OP Units to
the foregoing, a limited partner Partnership Agreement, until the any transferee without the consent
may gratuitously transfer all or expiration of one year from the of the general partner, which
any portion of his interest in his date on which a holder of Preferred consent may be withheld in its sole
limited partnership interest to his OP Units acquired Preferred OP and absolute discretion. After the
spouse, any member of his family, a Units, subject to certain expiration of one year, such OP
trust for the benefit of those exceptions, such holder of Unitholder has the right to
individuals or a corporation in Preferred OP Units may not transfer transfer all or any portion of its
which such partner has a majority all or any portion of its Pre- OP Units to any person, subject to
interest. No assignment or trans- ferred OP Units to any transferee the satisfaction of certain
fers will be permitted if such without the consent of the general conditions specified in the AIMCO
assignment of transfer would result partner, which consent may be Operating Partnership Agreement,
in 50% or more of the limited withheld in its sole and absolute including the general partner's
partnership interest being as- discretion. After the expiration of right of first refusal. See
signed or transferred within any one year, such holders of Preferred "Description of OP Units --
twelve-month period. In order for a OP Units has the right to transfer Transfers and Withdrawals" in the
transferee to be substituted as a all or any portion of its Preferred accompanying Prospectus.
limited partner, in addition to the OP Units to any person, subject to
above requirements: (1) a the satisfaction of
</TABLE>
S-68
<PAGE> 1975
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
fully executed and acknowledged certain conditions specified in the After the first anniversary of
written instrument of assignment AIMCO Operating Partnership Agree- becoming a holder of Common OP
must be filed with your ment, including the general Units, an OP Unitholder has the
partnership, (2) the interest partner's right of first refusal. right, subject to the terms and
transferred must be at least one conditions of the AIMCO Operating
unit, except in certain After a one-year holding period, a Partnership Agreement, to require
circumstances, (3) the transfer holder may redeem Preferred OP the AIMCO Operating Partnership to
fees must be paid and (4) such Units and receive in exchange redeem all or a portion of the
other conditions as are set forth therefor, at the AIMCO Operating Common OP Units held by such party
in your partnership's agreement of Partnership's option, (i) subject in exchange for a cash amount based
limited partnership must be to the terms of any Senior Units, on the value of shares of Class A
fulfilled. cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
There are no redemption rights Preferred OP Units tendered for the accompanying Prospectus. Upon
associated with your units. redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-69
<PAGE> 1976
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual management fee equal to the greater of an amount equal to 7.5% of the Net
Cash Flow or $10,000, payable monthly in addition to reimbursement for expenses
generated in its capacity as general partner, which received management fees of
80,878 in 1996, 83,502 in 1997 and 44,072 for the first six months of 1998. The
AIMCO Operating Partnership has no current intention of changing the fee
structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-70
<PAGE> 1977
YOUR PARTNERSHIP
GENERAL
La Colina Partners, Ltd. is a California limited partnership which raised
net proceeds of approximately $2,548,000 in 1983 through a private offering. The
promoter for the private offering of your partnership was Angeles Properties,
Inc. Insignia acquired your partnership in November 1992. AIMCO acquired
Insignia in October, 1998. There are currently a total of 51 limited partners of
your partnership and a total of 52 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the single apartment property
described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on January 1, 1993 for the purpose of owning
and operating a single apartment property located in Denton, Texas, known as "La
Colina Ranch Apartments." Your partnership's property consists of 264 apartment
units. There are 112 one-bedroom apartments and 152 two-bedroom apartments. The
total rentable square footage of your partnership's property is 194,304 square
feet. Your partnership's property had an average occupancy rate of approximately
98.11% in 1996 and 98.11% in 1997. The average annual rent per apartment unit is
approximately $6,054.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since November 1992, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $80,878, $83,502 and $44,072, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2023
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-71
<PAGE> 1978
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $5,014,155, payable to FNMA, which bears interest at a rate of
7.83%. The mortgage debt is due in October 2003. Your partnership also has a
second mortgage note outstanding of $163,710, on the same terms as the current
mortgage note. Your partnership's agreement of limited partnership also allows
the general partner of your partnership to lend funds to your partnership.
Currently, the general partner of your partnership has no loan outstanding to
your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. The Financial Statements have been
prepared on an income tax basis. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS
CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER.
S-72
<PAGE> 1979
Below is selected financial information for La Colina Partners, Ltd.
derived from the financial statements described above. The 1993 amounts have
been derived from audited financial which are not included in this Prospectus
Supplement. See "Index to Financial Statements."
<TABLE>
<CAPTION>
LA COLINA PARTNERS, LTD.
-----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... 646,622 1,189,039 522,599 1,197,289 1,054,351 453,595 314,284
Land & Building.............. 5,747,515 5,674,833 5,708,625 5,558,406 5,500,644 5,597,351 5,554,435
Accumulated Depreciation..... (4,840,729) (4,818,548) (4,829,638) (4,807,456) (4,790,604) (4,952,545) (4,886,878)
Other Assets................. 707,356 731,585 796,105 769,211 791,401 827,751 817,380
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ 2,260,764 2,776,909 2,197,691 2,717,450 2,555,792 1,926,152 1,799,221
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest................... 5,117,342 5,175,045 5,152,338 5,747,001 5,796,983 5,841,983 5,901,227
Other Liabilities............ 199,543 930,819 297,101 487,439 394,850 322,242 223,199
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... 5,316,885 6,105,864 5,449,439 6,234,440 6,191,833 6,164,225 6,124,426
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... (3,056,121) (3,328,955) (3,251,748) (3,516,990) (3,636,041) (4,238,073) (4,325,205)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
LA COLINA PARTNERS, LTD.
------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Rental Revenue......................... 828,243 801,091 1,619,361 1,584,879 1,511,792 1,411,000 1,330,511
Other Income........................... 50,292 56,369 114,404 96,764 641,056 150,608 95,064
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Revenue................. 878,535 857,460 1,733,765 1,681,643 2,152,848 1,561,608 1,425,575
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Expenses..................... 349,534 310,583 687,976 799,570 606,324 645,316 1,162,320
General & Administrative............... 17,115 14,888 39,066 53,865 48,702 60,789 162,802
Depreciation........................... 11,091 11,091 22,182 16,852 12,569 65,667 63,315
Interest Expense....................... 203,517 237,122 505,679 508,941 520,959 550,242 502,113
Property Taxes......................... 101,651 95,741 193,620 182,364 157,568 152,462 155,230
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Expenses................ 682,908 669,425 1,448,523 1,561,592 1,346,122 1,474,476 2,045,780
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income............................. 195,627 188,035 285,242 120,051 806,726 87,132 (620,205)
======== ======== ========== ========== ========== ========== ==========
</TABLE>
S-73
<PAGE> 1980
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $195,627 for the six months ended
June 30, 1998, compared to $188,035 for the six months ended June 30, 1997, an
increase in net income of $7,592, or 4.04%. This increase was primarily the
result of a greater increase in revenue than in expenses. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$878,535 for the six months ended June 30, 1998, compared to $857,460 for the
six months ended June 30, 1997, an increase of $21,075, or 2.46%.
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $349,534 for the
six months ended June 30, 1998, compared to $310,583 for the six months ended
June 30, 1997, an increase of $38,951 or 12.54%. This increase is due primarily
to an increase in non-capitalizable exterior maintenance and landscaping.
Management expenses totaled $44,072 for the six months ended June 30, 1998,
compared to $42,375 for the six months ended June 30, 1997, an increase of
$1,697, or 4.00%.
General and Administrative Expenses
General and administrative expenses totaled $17,115 for the six months
ended June 30, 1998 compared to $14,888 for the six months ended June 30, 1997,
an increase of $2,227 or 14.96%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $203,517 for the six months ended June 30, 1998, compared to
$237,122 for the six months ended June 30, 1997, a decrease of $33,605, or
14.17%. The decrease was due to the partnership's note payable to Angeles
Acceptance pool being retired in the third quarter of 1997.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $285,242 for the year ended
December 31, 1997, compared to $120,051 for the year ended December 31, 1996.
The increase in net income of $165,191, or 137.60% was primarily the result of
an increase in revenues and a decrease in operating expenses. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,733,765 for the year ended December 31, 1997, compared to $1,681,643 for the
year ended December 31, 1996, an increase of $52,122, or 3.10%.
S-74
<PAGE> 1981
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $687,976 for the
year ended December 31, 1997, compared to $799,570 for the year ended December
31, 1996, a decrease of $111,594 or 13.96%. This is due to a reduction in
non-capitalized exterior maintenance and landscaping. Management expenses
totaled $83,502 for the year ended December 31, 1997, compared to $80,878 for
the year ended December 31, 1996, an increase of $2,624, or 3.24%.
General and Administrative Expenses
General and administrative expenses totaled $39,066 for the year ended
December 31, 1997 compared to $53,865 for the year ended December 31, 1996, a
decrease of $14,799 or 27.47%. The decrease is primarily due to a decrease in
General Partner reimbursement fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $505,679 for the year ended December 31, 1997, compared to
$508,941 for the year ended December 31, 1996, a decrease of $3,262, or 0.64%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $120,051 for the year ended
December 31, 1996, compared to $806,726 for the year ended December 31, 1995.
The decrease in net income of $686,675, or 85.12% was primarily the result of
decrease in revenues and an increase in expenses. These factors are discussed in
more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,681,643 for the year ended December 31, 1996, compared to $2,152,848 for the
year ended December 31, 1995, a decrease of $471,205, or 21.89%. The decrease is
due to a large settlement of $544,116 related to an AMIT obligation recorded in
income in 1995.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $799,570 for the
year ended December 31, 1996, compared to $606,324 for the year ended December
31, 1995, an increase of $193,246 or 31.87%. This is primarily due to
non-capitalized exterior repairs and major landscaping. Management expenses
totaled $80,878 for the year ended December 31, 1996, compared to $78,348 for
the year ended December 31, 1995, an increase of $2,530, or 3.23%.
General and Administrative Expenses
General and administrative expenses totaled $53,865 for the year ended
December 31, 1996 compared to $48,702 for the year ended December 31, 1995, an
increase of $5,163 or 10.60%. The increase is primarily due to a general
increase to various administrative expenses.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $508,941 for the year ended December 31, 1996, compared to
$520,959 for the year ended December 31, 1995, a decrease of $12,018, or 2.31%.
S-75
<PAGE> 1982
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $646,622 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Your partnership's agreement of
limited partnership does not limit the liability of the general partners to your
partnership or any limited partners for acts done in their capacity as general
partner. The general partner of your partnership is owned by AIMCO. See
"Conflicts of Interest."
Under your partnership's agreement of limited partnership, the general
partners of your partnership are indemnified for any loss or damage, including
legal fees and expenses and amounts paid in settlement, incurred by such parties
by reason of any act performed or omitted by such parties on behalf of your
partnership or in furtherance of your partnership's interest, provided that the
party sued will not be entitled to indemnification for losses sustained by
reason of their gross negligence, willful misconduct or breach of fiduciary
obligations. As part of its assumption of liabilities in the consolidation,
AIMCO will indemnify the general partner of your partnership and their
affiliates for periods prior to and following the consolidation to the extent of
the indemnity under the terms of your partnership's agreement of limited
partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter. The
original cost per unit was $49,000.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 0.00
1995........................................................ 3,769.23
1996........................................................ 19.23
1997........................................................ 385.00
1998 (through June 30)...................................... 0.00
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner).
S-76
<PAGE> 1983
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in respect of its capacity as general partner of
your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ 29,166
1995........................................................ 42,281
1996........................................................ 45,370
1997........................................................ 39,929
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... 78,348
1996........................................... 80,878
1997........................................... 83,502
1998 (through June 30)......................... 44,072
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the compensation paid to the property
manager or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
S-77
<PAGE> 1984
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The consolidated financial statements -- income tax basis of La Colina
Partners, Ltd. at December 31, 1997, 1996 and 1995 and for the years then ended,
appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
S-78
<PAGE> 1985
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Statement of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of June 30, 1998
(unaudited)............................................... F-2
Condensed Statements of Revenues and Expenses -- Income Tax
Basis for the six months ended June 30, 1998 and 1997
(unaudited)............................................... F-3
Condensed Statements of Cash Flows -- Income Tax Basis for
the six months ended June 30, 1998 and
1997 -- (unaudited)....................................... F-4
Notes to Condensed Financial Statements -- Income Tax
Basis..................................................... F-5
Independent Auditors' Report................................ F-7
Consolidated Statement of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1997....... F-8
Consolidated Statement of Revenues and Expenses and Changes
in Partners' Deficit -- Income Tax Basis for the year
ended December 31, 1997................................... F-9
Consolidated Statement of Cash Flows -- Income Tax Basis for
the year ended December 31, 1997.......................... F-10
Notes to Consolidated Financial Statements -- Income Tax
Basis..................................................... F-11
Independent Auditors' Report................................ F-15
Consolidated Statement of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1996....... F-16
Consolidated Statement of Revenues and Expenses and Changes
in Partners' Deficit -- Income Tax Basis for the year
ended December 31, 1996................................... F-17
Consolidated Statement of Cash Flows -- Income Tax Basis for
the year ended December 31, 1996.......................... F-18
Notes to Consolidated Financial Statements -- Income Tax
Basis..................................................... F-19
Independent Auditors' Report................................ F-23
Consolidated Statements of Assets, Liabilities and Partners'
Deficit -- Income Tax Basis as of December 31, 1995 and
1994...................................................... F-24
Consolidated Statements of Revenues and Expenses and Changes
in Partners' Deficit -- Income Tax Basis for the years
ended December 31, 1995 and 1994.......................... F-25
Consolidated Statements of Cash Flows -- Income Tax Basis
for the years ended December 31, 1995 and 1994............ F-26
Notes to Consolidated Financial Statements -- Income Tax
Basis..................................................... F-27
</TABLE>
F-1
<PAGE> 1986
LA COLINA PARTNERS, LIMITED
CONDENSED STATEMENT OF ASSETS, LIABILITIES
AND PARTNERS' DEFICIT --
INCOME TAX BASIS
(UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 646,622
Receivables and Deposits.................................... 133,198
Restricted Escrows.......................................... 117,792
Syndication Costs........................................... 333,392
Other Assets................................................ 122,974
Investment Property:
Land...................................................... $ 546,579
Building and related personal property.................... 5,200,936
-----------
5,747,515
Less: Accumulated depreciation............................ (4,840,729) 906,786
----------- -----------
Total Assets:..................................... $ 2,260,764
===========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable............................................ $ 14,293
Other Accrued Liabilities................................... 40,754
Property Taxes Payable...................................... 101,651
Tenant Security Deposits.................................... 42,845
Notes Payable............................................... 5,117,342
Partners' Deficit........................................... (3,056,121)
-----------
Total Liabilities and Partners' Deficit........... $ 2,260,764
===========
</TABLE>
See notes to interim financial statements.
F-2
<PAGE> 1987
LA COLINA PARTNERS, LIMITED
CONDENSED STATEMENTS OF REVENUES AND EXPENSES -- INCOME TAX BASIS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $828,243 $801,091
Other Income.............................................. 50,292 56,369
-------- --------
Total Revenues.................................... 878,535 857,460
Expenses:
Operating Expenses........................................ 349,534 310,583
General and Administrative Expenses....................... 17,115 14,888
Depreciation Expense...................................... 11,091 11,091
Interest Expense.......................................... 203,517 237,122
Property Tax Expense...................................... 101,651 95,741
-------- --------
Total Expenses.................................... 682,908 669,425
Net Income........................................ $195,627 $188,035
======== ========
</TABLE>
See notes to interim financial statements.
F-3
<PAGE> 1988
LA COLINA PARTNERS, LIMITED
CONDENSED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
-------- ----------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $195,627 $ 188,035
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 11,091 11,091
Changes in accounts:
Receivables and deposits and other assets............ 91,349 89,128
Accounts Payable and accrued expenses................ (97,558) 443,380
-------- ----------
Net cash provided by (used in) operating
activities...................................... 200,509 731,634
-------- ----------
Investing Activities:
Property improvements and replacements.................... (38,890) (116,426)
Net (increase)/decrease in restricted escrows............. (2,600) (2,342)
-------- ----------
Net cash provided by (used in) investing
activities...................................... (41,490) (118,768)
-------- ----------
Financing Activities:
Distributions to partners................................. -- --
Payments on mortgage...................................... (34,996) (571,956)
-------- ----------
Net cash provided by (used in) financing
activities...................................... (34,996) (571,956)
-------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... 124,023 40,910
Cash and cash equivalents at beginning of year.............. 522,599 1,148,129
-------- ----------
Cash and cash equivalents at end of period.................. $646,622 $1,189,039
======== ==========
</TABLE>
See notes to interim financial statements.
F-4
<PAGE> 1989
LA COLINA PARTNERS, LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS -- INCOME TAX BASIS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of La Colina Partners,
Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997
have been prepared in accordance with the accounting basis for Federal income
tax reporting. Accordingly, they do not include all the information and
footnotes required by the accounting basis for Federal income tax reporting for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
NOTE B -- SUBSEQUENT EVENT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-5
<PAGE> 1990
LA COLINA PARTNERS, LIMITED
CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-6
<PAGE> 1991
INDEPENDENT AUDITORS' REPORT
General Partners
La Colina Partners, Limited:
We have audited the consolidated statement of assets, liabilities and
partners' deficit -- income tax basis of La Colina Partners, Limited (a limited
partnership) and its limited partnership interest as of December 31, 1997, and
the related consolidated statements of revenues and expenses and changes in
partners' deficit -- income tax basis and cash flows -- income tax basis for the
year then ended. These consolidated financial statements are the responsibility
of the partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note A, these consolidated financial statements were
prepared on the basis of accounting La Colina Partners, Limited uses for Federal
income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of La Colina
Partners, Limited and its limited partnership interest as of December 31, 1997,
and the results of their operations and their cash flows for the year then
ended, on the basis of accounting described in Note A.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 13, 1998
F-7
<PAGE> 1992
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME
TAX BASIS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Cash and cash equivalents................................... $ 522,599
Receivables and deposits.................................... 217,907
Restricted escrows (Note B)................................. 115,192
Other assets................................................ 463,006
Investment properties (Note C):
Land...................................................... 546,579
Buildings and related personal property................... 5,162,046
-----------
5,708,625
Less accumulated depreciation............................. (4,829,638)
-----------
878,987
-----------
$ 2,197,691
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 20,214
Tenant security deposits.................................. 38,715
Accrued taxes............................................. 193,620
Other liabilities......................................... 44,552
Notes payable (Note C).................................... 5,152,338
Partners' deficit........................................... (3,251,748)
-----------
$ 2,197,691
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-8
<PAGE> 1993
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES
AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Revenues:
Rental income............................................. $ 1,619,361
Other income.............................................. 114,404
-----------
Total revenues......................................... 1,733,765
-----------
Expenses:
Operating (Note D)........................................ 687,976
General and administrative (Note D)....................... 39,066
Depreciation.............................................. 22,182
Interest.................................................. 505,679
Property taxes............................................ 193,620
-----------
Total expenses......................................... 1,448,523
-----------
Net income.................................................. 285,242
Distributions to partners................................... (20,000)
Partners' deficit at beginning of year...................... (3,516,990)
-----------
Partners' deficit at end of year............................ $(3,251,748)
===========
</TABLE>
See Accompanying Notes to Financial Statements -- Income Tax Basis
F-9
<PAGE> 1994
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 285,242
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 22,182
Amortization of discounts and loan costs............... 37,846
Change in accounts:
Receivables and deposits............................. 6,745
Other assets......................................... (6,640)
Accounts payable..................................... (3,239)
Tenant security deposit liabilities.................. (10,860)
Accrued taxes........................................ 11,256
Other liabilities.................................... (187,495)
----------
Net cash provided by operating activities......... 155,037
----------
Cash flows from investing activities:
Property improvements and replacements.................... (150,219)
Net deposits to restricted escrows........................ (4,735)
----------
Net cash used in investing activities............. (154,954)
----------
Cash flows from financing activities:
Payments on notes payable................................. (605,613)
Distributions to partners................................. (20,000)
----------
Net cash used in financing activities............. (625,613)
----------
Net decrease in cash and cash equivalents................... (625,530)
Cash and cash equivalents at beginning of year.............. 1,148,129
----------
Cash and cash equivalents at end of year.................... $ 522,599
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 658,831
==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-10
<PAGE> 1995
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1997
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated financial statements include the accounts of La Colina
Partners, Limited (the "Partnership"), and its Limited Partnership interest in
La Colina Ranch Apartments, Limited (the "Project Partnership"). The Partnership
was organized solely to invest in the Project Partnership. The Project
Partnership owns and operates a 264 unit apartment complex, located in Denton,
Texas.
The Partnership was organized as a California limited partnership on July
15, 1983. The Managing General Partner of the Partnership is Angeles Properties,
Inc. ("API"). The non-managing general partners, who also serve as non-managing
general partners of the Project Partnership, are the Elliott Family Partnership,
Ltd. (a California limited partnership) and the Elliott Accommodation Trust (a
California limited partnership). The general partners act as general partners in
other limited partnerships and are affiliates of Angeles Investment Properties,
Inc. ("AIPI"), the Project Partnership's managing general partner. Pursuant to
the terms of the Agreement and Amended Certificate of Limited Partnership (the
"Agreement"), the general partners have contributed $26,000 to the Partnership
for which they are entitled to a 2% interest in the operating profits, losses,
credits and cash distributions of the Partnership.
Capital contributions of the limited partners aggregated $2,548,000.
Pursuant to the terms of the Agreement, the limited partners will receive a 98%
interest in the operating profits, losses, credits and cash distributions of the
Partnership.
The Partnership has made capital contributions to the Project Partnership
and is entitled to a 98% interest in the operating profits, losses, credits and
cash distributions of the Project Partnership. The Project Partnership's general
partners are entitled to the remaining 2% of the same.
Basis of Accounting
The consolidated financial statements are prepared on the basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The consolidated financial
statements represent the combination of both the Partnership and Project
Partnership tax returns. The tax basis used differs from GAAP primarily because
on the tax basis (1) certain rental income received in advance is recorded as
income in the year received rather than in the year earned, (2) buildings and
related personal property are depreciated using the lives specified under the
accelerated cost recovery system ("ACRS") or the modified accelerated cost
recovery system ("MACRS") instead of over the estimated lives of the assets, (3)
syndication costs are carried at their original value, instead of being
amortized over the estimated life of assets, and (4) income is recorded at the
partnership level based on the partnership agreement and the Internal Revenue
Code instead of being recorded based solely on the percentage of ownership
interest.
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
F-11
<PAGE> 1996
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
Depreciation
Depreciation is provided in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property.
Other Assets
Other assets at December 31, 1997 include deferred loan costs of $122,974,
which are amortized over the term of the related borrowing. Deferred loan costs
are shown net of accumulated amortization. Also included in other assets at
December 31, 1997 are $333,392 of syndication fees which are not amortized.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 were $115,192 and consist
of a reserve escrow established with a portion of the proceeds of the loan. The
funds are used for certain repair work, debt service, expenses and property
taxes or insurance. The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of the loan.
NOTE C -- NOTES PAYABLE
Notes payable at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
First mortgage note payable in monthly installments of
$38,684, including interest at 7.83%, due October 15,
2003; collateralized by land and buildings................ $5,049,151
Second mortgage note payable in interest only monthly
installments of $1,068, at a rate of 7.83%, with principal
due October 15, 2003; collateralized by land and
buildings................................................. 163,710
----------
Principal balance at year end............................... 5,212,861
Less unamortized discount................................... (60,523)
----------
$5,152,338
==========
</TABLE>
Scheduled net principal payments of the notes during the years subsequent
to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 71,386
1999..................................................... 77,179
2000..................................................... 83,444
2001..................................................... 90,218
2002..................................................... 97,541
Thereafter............................................... 4,793,093
----------
$5,212,861
==========
</TABLE>
F-12
<PAGE> 1997
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of prepayment or the present value of the excess of interest
which would be incurred at the stated rate under the notes over the interest
which would be incurred at the Treasury constant maturity for U.S. Government
obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership and the Project Partnership have no administrative or
management employees and are dependent on the general partners for the
management and administration of all partnership activities. The Project
Partnership is obligated to pay a property management fee equal to 5% of gross
monthly collections. In addition to the management fee, the partnership
agreement provides for payments of a partnership administration fee to general
partners and reimbursement of certain expenses incurred by general partners on
behalf of the Partnership and the Project Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1997
TYPE OF TRANSACTION AMOUNT
------------------- -------
<S> <C>
Property management fee..................................... $83,502
Reimbursements for services of affiliates................... $32,910
Construction oversight reimbursements....................... $ 7,019
</TABLE>
F-13
<PAGE> 1998
LA COLINA PARTNERS, LIMITED
CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-14
<PAGE> 1999
INDEPENDENT AUDITORS' REPORT
General Partners
La Colina Partners, Limited:
We have audited the consolidated statement of assets, liabilities and
partners' deficit -- income tax basis of La Colina Partners, Limited (a limited
partnership) and its limited partnership interest as of December 31, 1996, and
the related consolidated statement of revenues and expenses and changes in
partners' deficit -- income tax basis and cash flows -- income tax basis for the
year then ended. These consolidated financial statements are the responsibility
of the partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note A, these consolidated financial statements were
prepared on the basis of accounting La Colina Partners, Limited uses for Federal
income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of La Colina
Partners, Limited and its limited partnership interest as of December 31, 1996,
and the results of their operations and their cash flows for the year then
ended, on the basis of accounting described in Note A.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 17, 1997
F-15
<PAGE> 2000
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND
PARTNERS' DEFICIT -- INCOME TAX BASIS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 1,148,129
Restricted -- tenant security deposits.................... 49,160
Accounts receivable......................................... 2,761
Escrow for taxes and insurance.............................. 172,731
Restricted escrows (Note B)................................. 110,457
Other assets................................................ 483,262
Investment properties (Note C):
Land...................................................... 546,579
Buildings and related personal property................... 5,011,827
-----------
5,558,406
Less accumulated depreciation............................. (4,807,456)
-----------
750,950
-----------
$ 2,717,450
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 23,453
Tenant security deposits.................................. 49,575
Accrued taxes............................................. 182,364
Other liabilities (Note C)................................ 232,047
Notes payable (Note C).................................... 5,747,001
Partners' deficit........................................... (3,516,990)
-----------
$ 2,717,450
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-16
<PAGE> 2001
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND
CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenues:
Rental income............................................. $ 1,584,879
Other income.............................................. 96,764
-----------
Total revenues......................................... 1,681,643
-----------
Expenses:
Operating (Note D)........................................ 507,183
General and administrative (Note D)....................... 53,865
Maintenance............................................... 292,387
Depreciation.............................................. 16,852
Interest.................................................. 508,941
Property taxes............................................ 182,364
-----------
Total expenses......................................... 1,561,592
-----------
Net income.................................................. 120,051
Distributions to partners................................... (1,000)
Partners' deficit at beginning of year...................... (3,636,041)
-----------
Partners' deficit at end of year............................ $(3,516,990)
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-17
<PAGE> 2002
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 120,051
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 16,852
Amortization of discounts and loan costs............... 36,167
Change in accounts:
Restricted cash...................................... 2,989
Accounts receivable.................................. (1,029)
Escrow for taxes and insurance....................... (10,549)
Other assets......................................... --
Accounts payable..................................... 9,328
Tenant security deposit liabilities.................. (3,254)
Accrued taxes........................................ 25,126
Other liabilities.................................... 61,388
----------
Net cash provided by operating activities......... 257,069
----------
Cash flows from investing activities:
Property improvements and replacements.................... (57,762)
Changes in restricted escrows............................. 8,688
----------
Net cash used in investing activities............. (49,074)
----------
Cash flows from financing activities:
Payments on notes payable................................. (61,068)
Distributions to partners................................. (1,000)
----------
Net cash used in financing activities............. (62,068)
----------
Net increase in cash........................................ 145,927
Cash and cash equivalents at beginning of year.............. 1,002,202
----------
Cash and cash equivalents at end of year.................... $1,148,129
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 415,958
==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-18
<PAGE> 2003
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1996
NOTE A ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated financial statements include the accounts of La Colina
Partners, Limited (the "Partnership"), and its Limited Partnership interest in
La Colina Ranch Apartments, Limited (the "Project Partnership"). The Partnership
was organized solely to invest in the Project Partnership. The Project
Partnership owns and operates a 264 unit apartment complex, located in Denton,
Texas.
The Partnership was organized as a California limited partnership on July
15, 1983. The Managing General Partner of the Partnership is Angeles Properties,
Inc. ("API"). The non-managing general partners, who also serve as non-managing
general partners of the Project Partnership, are the Elliott Family Partnership,
Ltd. (a California limited partnership) and the Elliott Accommodation Trust (a
California limited partnership). The general partners act as general partners in
other limited partnerships and are affiliates of Angeles Investment Properties,
Inc. ("AIPI"), the Project Partnership's managing general partner. Pursuant to
the terms of the Agreement and Amended Certificate of Limited Partnership (the
"Agreement"), the general partners have contributed $26,000 to the Partnership
for which they are entitled to a 2% interest in the operating profits, losses,
credits and cash distributions of the Partnership.
Capital contributions of the limited partners aggregated $2,548,000.
Pursuant to the terms of the Agreement, the limited partners will receive a 98%
interest in the operating profits, losses, credits and cash distributions of the
Partnership.
The Partnership has made capital contributions to the Project Partnership
and is entitled to a 98% interest in the operating profits, losses, credits and
cash distributions of the Project Partnership. The Project Partnership's general
partners are entitled to the remaining 2% of the same.
Basis of Accounting
The consolidated financial statements are prepared on the basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The consolidated financial
statements represent the combination of both the Partnership and Project
Partnership tax returns. The tax basis used differs from GAAP primarily because
on the tax basis (1) certain rental income received in advance is recorded as
income in the year received rather than in the year earned, (2) buildings and
related personal property are depreciated using the lives specified under the
accelerated cost recovery system ("ACRS") or the modified accelerated cost
recovery system ("MACRS") instead of over the estimated lives of the assets, (3)
syndication costs are carried at their original value, instead of being
amortized over the estimated life of assets, and (4) income is recorded at the
partnership level based on the partnership agreement and the Internal Revenue
Code instead of being recorded based solely on the percentage of ownership
interest.
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
F-19
<PAGE> 2004
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
Depreciation
Depreciation is provided in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property.
Other Assets
Other assets at December 31, 1996 include deferred loan costs of $143,870,
which are amortized over the term of the related borrowing. Deferred loan costs
are shown net of accumulated amortization. Also included in other assets at
December 31, 1996 are $333,392 of syndication fees which are not amortized.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1996 were $110,457 and consist
of a reserve escrow established with a portion of the proceeds of the loan. The
funds are used for certain repair work, debt service, expenses and property
taxes or insurance. The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of the loan.
NOTE C -- NOTES PAYABLE
Notes payable at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
First mortgage note payable in monthly installments of
$38,684, including interest at 7.83%, due October 15,
2003; collateralized by land and buildings................ $5,115,177
Second mortgage note payable in interest only monthly
installments of $1,068, at a rate of 7.83%, with principal
due October 15, 2003; collateralized by land and
buildings................................................. 163,710
Note payable to Angeles Acceptance Pool, L.P., ("AAP"), an
affiliate of API, represents an unsecured working capital
loan with interest at prime plus 3% payable monthly with
principal and any accrued interest to be repaid at the
earlier of 1) the sale or refinancing of the investment
property, or 2) November 25, 1997......................... 539,587
----------
Principal balance at year end............................... 5,818,474
Less unamortized discount................................... (71,473)
----------
$5,747,001
==========
</TABLE>
Accrued interest on the note payable to AAP, which is included in other
liabilities, amount to $190,997 at December 31, 1996.
F-20
<PAGE> 2005
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED)
Scheduled net principal payments of the notes during the years subsequent
to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 605,613
1998..................................................... 71,385
1999..................................................... 77,180
2000..................................................... 83,445
2001..................................................... 90,218
Thereafter............................................... 4,890,633
----------
$5,818,474
==========
</TABLE>
Subsequent to October 15, 1996, the principal balance of the mortgage notes
may be prepaid in whole upon payment of a penalty of the greater of one percent
of the unpaid principal balance at the time of prepayment or the present value
of the excess of interest which would be incurred at the stated rate under the
notes over the interest which would be incurred at the Treasury constant
maturity for U.S. Government obligations. The unsecured note may be prepaid at
any time in whole or in part without premium or penalty.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership and the Project Partnership have no administrative or
management employees and are dependent on the general partners for the
management and administration of all partnership activities. The Project
Partnership is obligated to pay a property management fee equal to 5% of gross
monthly collections. In addition to the management fee, the partnership
agreement provides for payments of a partnership administration fee to general
partners and reimbursement of certain expenses incurred by general partners on
behalf of the Partnership and the Project Partnership.
Transactions with the Managing General Partner and its affiliates, in
addition to those disclosed in Note C, are as follows:
<TABLE>
<CAPTION>
1996
TYPE OF TRANSACTION AMOUNT
------------------- -------
<S> <C>
Property management fee.................................... $80,878
Reimbursements for services of affiliates.................. $32,430
Construction fees.......................................... $12,940
</TABLE>
F-21
<PAGE> 2006
LA COLINA PARTNERS, LIMITED
CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS
DECEMBER 31, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-22
<PAGE> 2007
INDEPENDENT AUDITORS' REPORT
General Partners
La Colina Partners, Limited:
We have audited the consolidated statements of assets, liabilities and
partners' deficit -- income tax basis of La Colina Partners, Limited (a limited
partnership) and its limited partnership interest as of December 31, 1995 and
1994, and the related consolidated statements of revenues and expenses and
changes in partners' deficit -- income tax basis and cash flows -- income tax
basis for the years then ended. These consolidated financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note A, these consolidated financial statements were
prepared on the basis of accounting La Colina Partners, Limited uses for Federal
income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of La Colina
Partners, Limited and its limited partnership interest as of December 31, 1995
and 1994, and the results of their operations and their cash flows for the years
then ended, on the basis of accounting described in Note A.
/s/ KPMG PEAT MARWICK LLP
March 4, 1996
F-23
<PAGE> 2008
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIES
AND PARTNERS' DEFICIT -- INCOME TAX BASIS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 1,002,202 $ 407,445
Restricted -- tenant security deposits.................... 52,149 46,150
Accounts receivable......................................... 1,732 670
Escrow for taxes and insurance.............................. 162,182 157,566
Restricted escrows (Note B)................................. 119,145 123,216
Other assets................................................ 508,342 546,299
Investment properties (Note C):
Land...................................................... 546,579 546,579
Buildings and related personal property................... 4,954,065 5,050,772
----------- -----------
5,500,644 5,597,351
Less accumulated depreciation............................. (4,790,604) (4,952,545)
----------- -----------
710,040 644,806
----------- -----------
$ 2,555,792 $ 1,926,152
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 14,125 $ 20,374
Tenant security deposits.................................. 52,829 48,555
Accrued taxes............................................. 157,238 152,462
Other liabilities (Note C)................................ 170,658 100,851
Notes payable (Note C).................................... 5,796,983 5,841,983
Partners' deficit (3,636,041) (4,238,073)
----------- -----------
$ 2,555,792 $ 1,926,152
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-24
<PAGE> 2009
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES AND
CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,511,792 $ 1,411,000
Other income (Note E)..................................... 641,056 150,608
----------- -----------
Total revenues......................................... 2,152,848 1,561,608
----------- -----------
Expenses:
Operating................................................. 418,323 429,411
General and administrative (Note D)....................... 48,702 60,789
Property management fees (Note D)......................... 78,348 74,170
Maintenance............................................... 109,653 141,735
Depreciation.............................................. 12,569 65,667
Interest.................................................. 520,959 550,242
Property taxes............................................ 157,568 152,462
----------- -----------
Total expenses......................................... 1,346,122 1,474,476
----------- -----------
Net income.................................................. 806,726 87,132
Distributions to partners................................... (204,694) --
Partners' deficit at beginning of year...................... (4,238,073) (4,325,205)
----------- -----------
Partners' deficit at end of year............................ $(3,636,041) $(4,238,073)
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-25
<PAGE> 2010
LA COLINA PARTNERS, LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 806,726 $ 87,132
Adjustments to reconcile net income to net cash provided
by
operating activities:
Depreciation........................................... 12,569 65,667
Amortization of discounts and loan costs............... 36,565 36,412
Change in accounts:
Restricted cash...................................... (5,999) (955)
Accounts receivable.................................. (1,062) 2,135
Escrow for taxes and insurance....................... (4,616) (20,003)
Other assets......................................... 12,876 (33,553)
Accounts payable..................................... (6,249) 15,268
Tenant security deposit liabilities.................. 4,274 3,360
Accrued taxes........................................ 4,776 15,056
Other liabilities.................................... 69,807 63,508
---------- --------
Net cash provided by operating activities......... 929,667 234,027
---------- --------
Cash flows from investing activities:
Property improvements and replacements.................... (77,803) (42,916)
Changes in restricted escrows............................. 4,071 15,968
---------- --------
Net cash used in investing activities............. (73,732) (26,948)
---------- --------
Cash flows from financing activities:
Payments on notes payable................................. (56,484) (68,723)
Distributions to partners................................. (204,694) --
---------- --------
Net cash used in financing activities............. (261,178) (68,723)
---------- --------
Net increase in cash........................................ 594,757 138,356
Cash and cash equivalents at beginning of year.............. 407,445 269,089
Cash and cash equivalents at end of year.................... $1,002,202 $407,445
========== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 420,543 $431,744
========== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis
F-26
<PAGE> 2011
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
INCOME TAX BASIS
DECEMBER 31, 1995 AND 1994
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated financial statements include the accounts of La Colina
Partners, Limited (the "Partnership"), and its Limited Partnership interest in
La Colina Ranch Apartments, Limited (the "Project Partnership"). The Partnership
was organized solely to invest in the Project Partnership. The Project
Partnership owns and operates a 264 unit apartment complex, located in Denton,
Texas.
The Partnership was organized as a California limited partnership on July
15, 1983. The Managing General Partner of the Partnership is Angeles Properties,
Inc. ("API"). The non-managing general partners, who also serve as non-managing
general partners of the Project Partnership, are the Elliott Family Partnership,
Ltd. (a California limited partnership) and the Elliott Accommodation Trust (a
California limited partnership). The general partners act as general partners in
other limited partnerships and are affiliates of Angeles Investment Properties,
Inc. ("AIPI"), the Project Partnership's managing general partner. Pursuant to
the terms of the Agreement and Amended Certificate of Limited Partnership (the
"Agreement"), the general partners have contributed $26,000 to the Partnership
for which they are entitled to a 2% interest in the operating profits, losses,
credits and cash distributions of the Partnership.
Capital contributions of the limited partners aggregated $2,548,000.
Pursuant to the terms of the Agreement, the limited partners will receive a 98%
interest in the operating profits, losses, credits and cash distributions of the
Partnership.
The Partnership has made capital contributions to the Project Partnership
and is entitled to a 98% interest in the operating profits, losses, credits and
cash distributions of the Project Partnership. The Project Partnership's general
partners are entitled to the remaining 2% of the same.
Basis of Accounting
The consolidated financial statements are prepared on the basis used in the
preparation of the Partnership's Federal income tax return and do not purport to
present financial position and results of operations in accordance with
generally accepted accounting principles ("GAAP"). The consolidated financial
statements represent the combination of both the Partnership and Project
Partnership tax returns. The tax basis used differs from GAAP primarily because
on the tax basis (1) certain rental income received in advance is recorded as
income in the year received rather than in the year earned, (2) buildings and
related personal property are depreciated using the lives specified under the
accelerated cost recovery system ("ACRS") or the modified accelerated cost
recovery system ("MACRS") instead of over the estimated lives of the assets, (3)
syndication costs are carried at their original value, instead of being
amortized over the estimated life of assets, and (4) subsidiary income is
recorded at the partnership level based on the partnership agreement and the
Internal Revenue Code instead of being recorded based solely on the percentage
of ownership interest.
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners. The Partnership's tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are susceptible
to varying interpretations under Federal and state income tax laws and
regulations, the amounts reported in the accompanying financial statements may
be subject to change at a later date upon final determination by the respective
taxing authorities.
F-27
<PAGE> 2012
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
INCOME TAX BASIS -- (CONTINUED)
Depreciation
Depreciation is provided for in amounts sufficient to allocate the cost of
depreciable assets to operations over lives in accordance with the applicable
statutory recovery methods, generally ACRS and MACRS, using the straight-line
and accelerated methods on both real and personal property.
Other Assets
Other assets at December 31, 1995 and 1994 include deferred loan costs
which are amortized over the term of the related borrowing. They are shown net
of accumulated amortization. Also included in other assets at December 31, 1995
and 1994 are $69,622 of syndication fees which are not amortized.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers cash and
all highly liquid investments, with an original maturity of three months or less
when purchased, to be cash and cash equivalents.
Reclassifications
Certain 1994 amounts have been reclassified to conform to the 1995
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrows at December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the loan were placed into a capital reserve account to be
used for certain capital improvements. The capital
improvements are anticipated to be completed in calendar
year 1996 and any excess funds will be returned for
property operations....................................... $ 12,944 $ 16,110
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. 106,201 107,106
---------- ----------
$ 119,145 $ 123,216
========== ==========
</TABLE>
F-28
<PAGE> 2013
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
INCOME TAX BASIS -- (CONTINUED)
NOTE C -- NOTES PAYABLE
Notes payable at December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$38,684, including interest at 7.83%, due October 15,
2003; collateralized by land and buildings................ $5,176,245 $5,232,729
Second mortgage note payable in interest only monthly
installments of $1,068, at a rate of 7.83%, with principal
due October 15, 2003; collateralized by land and
buildings................................................. 163,710 163,710
Note payable to Angeles Acceptance Pool, L.P., ("AAP"), an
affiliate of API, represents a working capital loan with
interest at prime plus 3% payable monthly with principal
and any accrued interest to be repaid at the earlier of 1)
the sale or refinancing of the investment property, or 2)
November 25, 1997......................................... 539,587 539,587
---------- ----------
Principal balance at year end............................... 5,879,542 5,936,026
Less unamortized discount................................... (82,559) (94,043)
---------- ----------
$5,796,983 $5,841,983
========== ==========
</TABLE>
Accrued interest on the note payable to AAP, which is included in other
liabilities, amounted to $130,181 and $66,330 at December 31, 1995 and 1994,
respectively.
Scheduled net principal payments of the notes during the years subsequent
to December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 61,069
1997..................................................... 605,613
1998..................................................... 71,385
1999..................................................... 77,180
2000..................................................... 83,445
Thereafter............................................... 4,980,850
----------
$5,879,542
==========
</TABLE>
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to October 15, 1996. Thereafter, the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of prepayment or the present value of the excess
of interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations. The unsecured note may be prepaid at any time in whole
or in part without premium or penalty.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership and the Project Partnership have no administrative or
management employees and are dependent on the general partners for the
management and administration of all partnership activities. The Project
Partnership is obligated to pay a property management fee equal to 5% of gross
monthly collections. In addition to the management fee, the partnership
agreement provides for payments of a partnership
F-29
<PAGE> 2014
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
INCOME TAX BASIS -- (CONTINUED)
administration fee to general partners and reimbursement of certain expenses
incurred by general partners on behalf of the Partnership and the Project
Partnership.
Transactions with the Managing General Partner and its affiliates, except
as disclosed in Note C, are as follows:
<TABLE>
<CAPTION>
1995 1994
TYPE OF TRANSACTION AMOUNT AMOUNT
- ------------------- ------- -------
<S> <C> <C>
Property management fee.................................. $78,348 $74,170
Reimbursements for services of affiliates................ $26,389 $29,166
Construction fees........................................ $15,892 $ --
</TABLE>
NOTE E -- BAD DEBT RECOVERY
In July 1993, Angeles Mortgage Investment Trust ("AMIT"), a real estate
investment trust, initiated litigation against the Partnership and other
partnerships which loaned money to AMIT seeking to avoid repayment of such
obligations. The Partnership subsequently filed a counterclaim against AMIT
seeking to enforce the obligation, the principal amount of which is $650,000
plus accrued interest from March 1993 ("AMIT Obligation"). In 1993, the
Partnership wrote off this receivable as a bad debt.
MAE GP Corporation ("MAE GP"), an affiliate of the Managing General
Partner, owns 1,675,113 Class B Shares of AMIT. MAE GP has the option to convert
these Class B Shares, in whole or in part, into Class A Shares on the basis of 1
Class A Share for every 49 Class B Shares. These Class B Shares entitle MAE GP
to receive 1.2% of the distributions of net cash distributed by AMIT. These
Class B Shares also entitle MAE GP to vote on the same basis as Class A Shares
which allows MAE GP to vote approximately 37% of the total shares (unless and
until converted to Class A Shares at which time the percentage of the vote
controlled represented by the shares held by MAE GP would approximate 1.2% of
the vote). Between the date of acquisition of these shares (November 24, 1992)
and March 31, 1995, MAE GP has declined to vote these shares. Since that date,
MAE GP voted its shares at the 1995 annual meeting in connection with the
election of trustees and other matters. MAE GP has not exerted and continues to
decline to exert any management control over or participate in the management of
AMIT. MAE GP may choose to vote these shares as it deems appropriate in the
future. In addition, Liquidity Assistance, LLC, ("LAC"), an affiliate of the
Managing General Partner and an affiliate of Insignia Financial Group, Inc.,
which provides property management and partnership administration services to
the Partnership, owns 63,200 Class A Shares of AMIT. These Class A Shares
entitle LAC to vote approximately 1.5% of the total shares.
On November 9, 1994, the Partnership executed a definitive Settlement
Agreement to settle the dispute with respect to the AMIT Obligation. The actual
closing of the Settlement occurred April 14, 1995. The Partnership's claim was
satisfied by a cash payment to the Partnership totaling $544,116 (the
"Settlement Amount") at closing. Income was recorded in 1995 equal to the cash
payment and is included in other income.
As part of the above described settlement, MAE GP granted to AMIT an option
to acquire the Class B shares owned by it. This option can be exercised at the
end of 10 years or when all loans made by AMIT to partnerships affiliated with
MAE GP as of November 9, 1994, which is the date of execution of the Settlement
Agreement, have been paid in full, but in no event prior to November 9, 1997.
AMIT delivered to MAE GP cash in the sum of $250,000 at closing, which occurred
April 14, 1995, as payment for the option. Upon exercise of the option, AMIT
would remit to MAE GP an additional $94,000.
F-30
<PAGE> 2015
LA COLINA PARTNERS, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
INCOME TAX BASIS -- (CONTINUED)
Simultaneously with the execution of the option agreement, MAE GP executed
an irrevocable proxy in favor of AMIT the result of which is MAE GP will be able
to vote the Class B shares on all matters except those involving transactions
between AMIT and MAE GP affiliated borrowers or the election of any MAE GP
affiliate as an officer or trustee of AMIT. On those matters, MAE GP granted to
the AMIT trustees, in their capacity as trustees of AMIT, proxies with regard to
the Class B shares instructing such trustees to vote said Class B shares in
accordance with the vote of the majority of the Class A Shares voting to be
determined without consideration of the votes of "Excess Class A Shares" as
defined in section 6.13 of the Declaration of Trust of AMIT.
F-31
<PAGE> 2016
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 2017
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 2018
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 2019
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
LAKE EDEN ASSOCIATES, L.P.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO TENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 2020
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-16
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-17
Comparison of Your Units and AIMCO OP
Units...................................... S-17
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Lake Eden
Associates, L.P............................ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
VALUATION OF UNITS............................. S-53
FAIRNESS OF THE OFFER.......................... S-54
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-54
Fairness to Unitholders who Tender their
Units...................................... S-55
Fairness to Unitholders who do not Tender
their Units................................ S-56
Comparison of Consideration to Alternative
Consideration.............................. S-56
Allocation of Consideration.................. S-57
STANGER ANALYSIS............................... S-57
Experience of Stanger........................ S-58
Summary of Materials Considered.............. S-58
Summary of Reviews........................... S-59
Conclusions.................................. S-59
Assumptions, Limitations and
Qualifications............................. S-59
Compensation and Material Relationships...... S-60
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-62
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
</TABLE>
i
<PAGE> 2021
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONFLICTS OF INTEREST.......................... S-71
Conflicts of Interest with Respect to the
Offer...................................... S-71
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-71
Competition Among Properties................. S-71
Features Discouraging Potential Takeovers.... S-71
Future Exchange Offers....................... S-71
YOUR PARTNERSHIP............................... S-72
General...................................... S-72
Your Partnership and its Property............ S-72
Property Management.......................... S-72
Investment Objectives and Policies; Sale or
Financing of Investments................... S-72
Capital Replacement.......................... S-73
Borrowing Policies........................... S-73
Competition.................................. S-73
Legal Proceedings............................ S-73
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Your Partnership............. S-75
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
Distributions and Transfers of Units......... S-77
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-78
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-79
LEGAL MATTERS.................................. S-79
EXPERTS........................................ S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 2022
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Lake Eden Associates, L.P. For each unit that you tender, you may choose to
receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner (the "general partner") of
your partnership and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 2023
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 2024
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $1,319.86 per unit for the six
months ended June 30, 1998 (equivalent to $2,639.72 on an annual basis). We
will pay fixed quarterly distributions of $ per unit on the
Tax-Deferral % Preferred OP Units before any distributions are paid to
holders of Tax-Deferral Common OP Units. We pay quarterly distributions on
the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the six months ended June 30, 1998, we paid distributions
of $1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25
on an annual basis). This is equivalent to distributions of $ per year
on the number of Tax-Deferral % Preferred OP Units, or distributions of
$ per year on the number of Tax-Deferral Common OP Units, that you
would receive in an exchange for each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
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THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
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Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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<PAGE> 2028
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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<PAGE> 2029
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
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<PAGE> 2030
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
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<PAGE> 2031
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or
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<PAGE> 2032
rental rates, increases in operating costs, and changes in governmental
regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The
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authorization and issuance of preferred stock could have the effect of delaying
or preventing someone from taking control of us, even if a change in control
were in our stockholders' best interests. As a Maryland corporation, we are
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently do not own any limited partnership interest in
your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the
S-12
<PAGE> 2034
benefits that your general partner expects to result from the offer. For
example, a partner of your partnership would have no opportunity for
liquidity unless he were to sell his units in a private transaction. Any
such sale would likely be at a very substantial discount from the partner's
pro rata share of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
S-13
<PAGE> 2035
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
S-14
<PAGE> 2036
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS", "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
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<PAGE> 2037
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-average market mortgage interest rates.
In addition, we considered the recent decline in the market for equity
securities, including those of REITs and the decline in the availability of
commercial mortgage financing. Although the direct capitalization method is a
widely-accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
S-16
<PAGE> 2038
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
S-17
<PAGE> 2039
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner but may receive reimbursement for expenses
generated in that capacity from your partnership. The property manager received
management fees of $104,498 in 1996, $111,851 in 1997 and $54,902 for the first
six months of 1998. We have no current intention of changing the fee structure
for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Lake Eden Associates, L.P. is a Delaware
limited partnership which was formed on January 11, 1985 for the purpose of
owning and operating a single apartment property located in Columbus, Ohio,
known as "Lake Eden/Lebanon Station Apartments". In 1985, it completed a private
placement of units that raised net proceeds of approximately $2,045,000. Your
partnership has no employees.
Property Management. Since December 1991, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2008, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
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<PAGE> 2040
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $7,041,590, payable to Marine Midland and
Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is
due in November 2002. Your partnership also has a second mortgage note
outstanding of $250,216, on the same terms as the current mortgage note. Your
partnership's agreement of limited partnership also allows your general partner
to lend funds to your partnership. Currently, the general partner of your
partnership has no loans outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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<PAGE> 2041
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10 which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 2042
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 2043
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to the AIMCO's merger with Insignia Financial Group,
Inc., the transfer of certain assets and liabilities of Insignia to
unconsolidated subsidiaries, a number of transactions completed before the
Insignia merger, and the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 2044
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 2045
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 2046
SUMMARY FINANCIAL INFORMATION OF LAKE EDEN ASSOCIATES, L.P.
The summary financial information of Lake Eden Associates, L.P. for the six
months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Lake Eden Associates, L.P. for the years ended December 31, 1997
and 1996, 1995 and 1994 is based on audited financial statements. This
information should be read in conjunction with such financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Your Partnership" included
herein. See "Index to Financial Statements."
LAKE EDEN ASSOCIATES, L.P.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues......... 1,090,117 1,105,569 2,249,681 2,115,254 2,075,758 2,018,815 1,955,707
Net Income/(Loss)...... 117,218 76,594 252,740 48,490 144,148 (204,553) (243,914)
Balance Sheet Data:
Real Estate, Net of
Accumulated Depreciation... 2,821,493 2,703,392 2,856,193 2,708,827 2,758,941 2,802,668 3,143,200
Total Assets........... 3,648,988 3,621,263 3,925,746 3,825,929 3,977,920 3,971,190 4,310,476
Mortgage Notes Payable,
including Accrued
Interest................... 6,999,503 7,173,872 7,088,397 7,245,235 7,388,963 7,520,678 7,641,385
Partners'
Capital/(Deficit).......... (3,575,771) (3,816,488) (3,640,342) (3,829,695) (3,785,885) (3,892,146) (3,619,432)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per Common OP Unit and
historical cash distributions per unit of your Partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
-------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................ $1.125 $1.85 $
</TABLE>
S-25
<PAGE> 2047
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly,
although there can be no assurance, you might receive more consideration if you
do not tender your units and, instead, continue to hold your units and
ultimately receive proceeds from a liquidation of your partnership. However, you
may prefer to receive our offer consideration now rather than wait for uncertain
future net liquidation proceeds. Furthermore, your general partner has no
present intention to liquidate your partnership, and your partnership's
agreement of limited partnership does not require a sale of your partnership's
property by any particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 2048
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code.
The particular tax consequences for you of our offer will depend upon a
number of factors related to your tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership (and
therefore are no longer subject to the "passive" loss rules with respect to your
partnership). Because the income tax consequences of tendering units will not be
the same for everyone, you should consult your own tax advisor with specific
reference to your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I
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Preferred Stock or the Class A Common Stock will trade following the time at
which Preferred OP Units or Common OP Units may be redeemed for shares of Class
I Preferred Stock or Class A Common Stock. Furthermore, the liquidity of the
Class I Preferred Stock and the Class A Common Stock at the time at which OP
Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June 30, 1998 were $1,319.86 (equivalent to
$2,639.72 on an annualized basis). This is equivalent to distributions of $
per year on the number of Tax-Deferral % Preferred OP Units, or distributions
of $ per year on the number of Tax-Deferral Common OP Units, that you would
receive in an exchange for each of your partnership's units. Therefore
distributions with respect to the Preferred OP Units and Common OP Units that we
are offering are expected to be , immediately following our offer, than
the distributions with respect to your units. See "Comparison of Ownership of
Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns
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surrounding AIMCO's ability to successfully implement its financial strategy
while maintaining a prudent capital structure as a result of the more difficult
general capital market conditions. Moody's noted that AIMCO's access to the
public markets may prove challenging in light of the volatility in both the
equity and capital markets for REITs. Moody's assigned a "ba3" rating to the
Class I Preferred Stock proposed to be issued by AIMCO, and confirmed its
previous ratings related to AIMCO's increasing leveraged profile, including high
levels of secured debt and preferred stock, limited financial flexibility and
integration risks resulting from the merger with Insignia. Moody's also noted
AIMCO's high level of encumbered properties and material investments in loans to
highly leveraged partnerships in which AIMCO owns a general partnership
interest. At the same time, Moody's confirmed its existing rating on AIMCO's
existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation
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methods to estimate the fair market value of your partnership's assets. Instead,
such assets would be valued through negotiations with prospective purchasers (in
many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
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- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY
DELAY IN MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash, offered, eliminating any of the alternative
types of considerations being offered, or increasing or decreasing the
percentage of outstanding units being sought). Notice of any such extension,
termination or amendment will promptly be disseminated in a manner reasonably
designed to inform unitholders of such change. In the case of an extension of
the offer, the extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., Denver, Colorado
time, on the next business day after the scheduled expiration date of the offer,
in accordance with Rule 14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998 (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998 (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 2067
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 2068
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
Nature of Investment
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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<PAGE> 2069
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 2070
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 2071
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 2072
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-average market mortgage interest rates.
In addition, we considered the recent decline in the market for equity
securities, including those of REITs, and the decline in the availability of
commercial mortgage financing. Although the direct capitalization method is a
widely accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions with respect to the
Common OP Units are $2.25, and distributions with respect to your units for
the six months ended June 30, 1998 were $1,319.86 (equivalent to $2,639.72
on an annualized basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units, or distributions
of $ per year on the number of Tax-Deferral Common OP Units, that you
would receive in an exchange for each of your partnership's units.
Therefore distributions with respect to the Preferred OP Units and Common
OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions." See "Comparison of Ownership of Your Units and
AIMCO OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method
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described in "Valuation of Units" provides a meaningful indication of value
for residential apartment properties although there are other ways to value real
estate. A liquidation in the future might generate a higher price for holders of
units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar
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apartment properties, the manner in which your partnership's property is sold
and changes in availability of capital to finance acquisitions of apartment
properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
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Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also
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performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information
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contained in this Prospectus Supplement or that were provided, made
available, or otherwise communicated to Stanger by your partnership, AIMCO, or
the management of the partnership's property. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of your partnership. Stanger relied upon the representations of
your partnership and AIMCO concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, the determination and valuation of non-real
estate assets and liabilities of your partnership, the allocation of your
partnership's net values between the general partner, special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities
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<PAGE> 2082
laws. No portion of Stanger's fee is contingent upon consummation of the
offer or the content of Stanger's opinion. Stanger has performed other services
for AIMCO in the past, including: general financial advisory services relating
to a potential acquisition by AIMCO. However, such acquisition was never
completed and no fee was paid to Stanger.
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<PAGE> 2083
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Delaware law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Lake Eden/ Lebanon Station Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Available Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2008. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to purchase, hold, The purpose of the AIMCO Operating Partnership is to
lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by
Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the
agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as
perform all acts necessary or appropriate in connection amended from time to time, or any successor to such
therewith and reasonably related thereto, including statute) (the "Delaware Limited Partnership Act"),
acquiring additional real or personal property, provided that such business is to be conducted in a
borrowing money and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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<PAGE> 2084
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling 35.5 units for cash and notes to time to the limited partners and to other persons, and
selected persons who fulfill the requirements set forth to admit such other persons as additional limited
in your partnership's agreement of limited partnership. partners, on terms and conditions and for such capital
The capital contribution need not be equal for all contributions as may be established by the general
limited partners and no action or consent is required partner in its sole discretion. The net capital
in connection with the admission of any additional contribution need not be equal for all OP Unitholders.
limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership The AIMCO Operating Partnership may lend or contribute
sets forth contracts that are to be made with the funds or other assets to its subsidiaries or other
general partner and affiliates of the general partner. persons in which it has an equity investment, and such
In addition, the general partner may make loans to your persons may borrow funds from the AIMCO Operating
partnership in such sums as the general partner deems Partnership, on terms and conditions established in the
appropriate and necessary for the conduct of your sole and absolute discretion of the general partner. To
partnership's business. The terms and maturities of the extent consistent with the business purpose of the
such loans must be reasonable as determined by the AIMCO Operating Partnership and the permitted
general partner, interest charged cannot exceed the activities of the general partner, the AIMCO Operating
greater of 2 1/2% over the base rate then being charged Partnership may transfer assets to joint ventures,
by Third National Bank in Nashville or the interest limited liability companies, partnerships,
rate paid by the general partner to a third party corporations, business trusts or other business
lender for the funds and other charges and fees must be entities in which it is or thereby becomes a
at least as favorable to your partnership as those participant upon such terms and subject to such
negotiated by unaffiliated lenders on comparable loans conditions consistent with the AIMCO Operating Part-
for the same purpose in the same locale. nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money on the credit of and enter into restrictions on borrowings, and the general partner has
obligations on behalf of your partnership and to give full power and authority to borrow money on behalf of
as security therefor any partnership's property. the AIMCO Operating Partnership. The AIMCO Operating
However, the general partner may not incur any indebt- Partnership has credit agreements that restrict, among
edness pursuant to a non-recourse loan if the creditor other things, its ability to incur indebtedness. See
acquires, at any time as a result of making the loan, "Risk Factors -- Risks of Significant Indebtedness" in
any direct or indirect interest in the profits, capital the accompanying Prospectus.
or property of your partnership other than as a secured
creditor.
</TABLE>
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<PAGE> 2085
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners to have access to the with a statement of the purpose of such demand and at
current list of the names and addresses of all of the such OP Unitholder's own expense, to obtain a current
limited partners at all reasonable times at the list of the name and last known business, residence or
principal office of the general partners in Tennessee. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the All management powers over the business and affairs of
exclusive power to manage and control your partnership the AIMCO Operating Partnership are vested in AIMCO-GP,
and its business and affairs. The general partner has Inc., which is the general partner. No OP Unitholder
all rights and power which may be possessed by general has any right to participate in or exercise control or
partners under applicable laws and such additional management power over the business and affairs of the
rights and power as necessary, advisable or convenient AIMCO Operating Partnership. The OP Unitholders have
to the discharge of their duties under your the right to vote on certain matters described under
partnership's agreement of limited partnership. A "Comparison of Ownership of Your Units and AIMCO OP
limited partner may not take part in or interfere in Units -- Voting Rights" below. The general partner may
any manner with the conduct or control of the business not be removed by the OP Unitholders with or without
of your partnership and will have no right or authority cause.
to act for or bind your partnership, except that
limited partners may exercise the voting and other In addition to the powers granted a general partner of
rights provided in this your partnership's agreement of a limited partnership under applicable law or that are
limited partnership and under applicable laws. granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general
not liable to your partnership or any limited partner partner is not liable to the AIMCO Operating
for any acts performed by it or any failure to act in Partnership for losses sustained, liabilities incurred
the absence of gross negligence or willful malfea- or benefits not derived as a result of errors in
sance. However, your partnership's agreement of limited judgment or mistakes of fact or law of any act or
partnership does not provide for the indemnification of omission if the general partner acted in good faith.
the general partner or its affiliates for any acts or The AIMCO Operating Partnership Agreement provides for
omissions performed by them on behalf of your indemnification of AIMCO, or any director or officer of
partnership. AIMCO (in its capacity as the previous general partner
of the AIMCO Operating Partnership), the general
partner, any officer or director of general partner or
the AIMCO Operating Partnership and such other persons
as the general partner may designate from and against
all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
</TABLE>
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<PAGE> 2086
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
the power to, indemnify and hold harmless any partner
or other person from and against any and all claims and
demands whatsoever. It is the position of the
Securities and Exchange Commission that indemnification
of directors and officers for liabilities arising under
the Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove the has exclusive management power over the business and
general partner for cause upon a vote of the limited affairs of the AIMCO Operating Partnership. The general
partners owning a majority of the outstanding units. partner may not be removed as general partner of the
The general partner may not transfer, assign, sell, AIMCO Operating Partnership by the OP Unitholders with
withdraw or otherwise dispose of its interest unless it or without cause. Under the AIMCO Operating Partnership
obtains the prior written consent of those persons Agreement, the general partner may, in its sole
owning more than 50% of the units and satisfies other discretion, prevent a transferee of an OP Unit from
conditions set forth in your partnership's agreement of becoming a substituted limited partner pursuant to the
limited partnership. The consent of all limited AIMCO Operating Partnership Agreement. The general
partners is necessary for the approval of a new general partner may exercise this right of approval to deter,
partner. A limited partner may not transfer his delay or hamper attempts by persons to acquire a
interests without the written consent of the general controlling interest in the AIMCO Operating Partner-
partner. ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to add in the AIMCO Operating Partnership Agreement, whereby
representations, duties or obligations of the general the general partner may, without the consent of the OP
partner or its affiliates or to surrender any right or Unitholders, amend the AIMCO Operating Partnership
power granted to them for the benefit of the limited Agreement, amendments to the AIMCO Operating
partners, to cure any ambiguity or error and to admit Partnership Agreement require the consent of the
additional or substitute limited partners. Other holders of a majority of the outstanding Common OP
amendments of your partnership's agreement of limited Units, excluding AIMCO and certain other limited
partnership may be proposed by the general partner. exclusions (a "Majority in Interest"). Amendments to
Such proposals will be sent to the limited partners the AIMCO Operating Partnership Agreement may be
together with a recommendation of the general partner proposed by the general partner or by holders of a
as to the proposal. The general partner may require a Majority in Interest. Following such proposal, the
response within a specified time not less than 30 days general partner will submit any proposed amendment to
from the notice and failure to respond will constitute the OP Unitholders. The general partner will seek the
a vote which is consistent with the general partners' written consent of the OP Unitholders on the proposed
recommendation. Approval of such proposals must be amendment or will call a meeting to vote thereon. See
given by the limited partners owning at least 51% of "Description of OP Units -- Amendment of the AIMCO
the units. Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives no fees for its services as general partner. capacity as general partner of the AIMCO Operating
Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part-
be entitled to compensation for additional services nership is responsible for all expenses incurred
rendered. relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
S-65
<PAGE> 2087
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, limited partners are not bound by, or negligence, no OP Unitholder has personal liability for
personally liable for, the expenses, liabilities or the AIMCO Operating Partnership's debts and
obligation of your partnership in excess of the limited obligations, and liability of the OP Unitholders for
partners' capital contribution, except as provided by the AIMCO Operating Partnership's debts and obligations
applicable law. is generally limited to the amount of their invest-
ment in the AIMCO Operating Partnership. However, the
limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must manage and partnership agreement, Delaware law generally requires
control your partnership, its business and affairs to a general partner of a Delaware limited partnership to
the best of their abilities and use their best efforts adhere to fiduciary duty standards under which it owes
to carry out the business of your partnership. The its limited partners the highest duties of good faith,
general partner must devote itself to the business of fairness and loyalty and which generally prohibit such
your partnership to the extent that it, in its general partner from taking any action or engaging in
discretion, deem necessary for the efficient carrying any transaction as to which it has a conflict of
on thereof. The general partner must act as a fiduciary interest. The AIMCO Operating Partnership Agreement
with respect to the safekeeping and use of the funds expressly authorizes the general partner to enter into,
and assets of your partnership. However, the partners on behalf of the AIMCO Operating Partnership, a right
may engage in whatever activities they choose, whether of first opportunity arrangement and other conflict
or not it is in competition with your partnership, avoidance agreements with various affiliates of the
without having or incurring any obligation to offer any AIMCO Operating Partnership and the general partner, on
interest in such activities to your partnership and the such terms as the general partner, in its sole and
partners and your partnership and the partners will absolute discretion, believes are advisable. The AIMCO
have no rights in or to such independent business Operating Partnership Agreement expressly limits the
ventures or the income and profits derived therefrom. liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 2088
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding units the holders of the Preferred OP respect to certain limited matters
and the consent of the general Units will have the same voting such as certain amendments and
partners, the limited partners may rights as holders of the Common OP termination of the AIMCO Operating
amend your partnership's agreement Units. See "Description of OP Partnership Agreement and certain
of limited partnership, dissolve Units" in the accompanying transactions such as the
and terminate your partnership; Prospectus. So long as any institution of bankruptcy
remove a general partner for cause Preferred OP Units are outstand- proceedings, an assignment for the
without the consent of the general ing, in addition to any other vote benefit of creditors and certain
partner; change the nature of your or consent of partners required by transfers by the general partner of
partnership's business and approve law or by the AIMCO Operating its interest in the AIMCO Operating
or Partnership Agree- Part-
</TABLE>
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<PAGE> 2089
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
disapprove the sale of all or ment, the affirmative vote or nership or the admission of a
substantially all of the assets of consent of holders of at least 50% successor general partner.
your partnership. The election of a of the outstanding Preferred OP
substitute general partner requires Units will be necessary for Under the AIMCO Operating Partner-
the approval of all of the limited effecting any amendment of any of ship Agreement, the general partner
partners. the provisions of the Partnership has the power to effect the
Unit Designation of the Preferred acquisition, sale, transfer,
The general partner may cause the OP Units that materially and exchange or other disposition of
dissolution of your partnership by adversely affects the rights or any assets of the AIMCO Operating
retiring when there is no remaining preferences of the holders of the Partnership (including, but not
general partner unless all of the Preferred OP Units. The creation or limited to, the exercise or grant
limited partners elect a substitute issuance of any class or series of of any conversion, option,
general partner within 90 days partnership units, including, privilege or subscription right or
after the retirement of the general without limitation, any partner- any other right available in
partner. ship units that may have rights connection with any assets at any
senior or superior to the Preferred time held by the AIMCO Operating
OP Units, shall not be deemed to Partnership) or the merger,
materially adversely affect the consolidation, reorganization or
rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
The general partner makes $ per Preferred OP Unit; tribute quarterly all, or such
distributions from Available Cash provided, however, that at any time portion as the general partner may
Flow quarterly within 45 days after and from time to time on or after in its sole and absolute discretion
the end of such quarter or at such the fifth anniversary of the issue determine, of Available Cash (as
time or times as the general date of the Preferred OP Units, the defined in the AIMCO Operating
partner deems practicable. The AIMCO Operating Partnership may Partnership Agreement) generated by
distributions payable to the adjust the annual distribution rate the AIMCO Operating Partnership
partners are not fixed in amount on the Preferred OP Units to the during such quarter to the general
and depend upon the operating lower of (i) % plus the annual partner, the special limited
results and net sales or interest rate then applicable to partner and the holders of Common
refinancing proceeds available from U.S. Treasury notes with a maturity OP Units on the record date
the disposition of your of five years, and (ii) the annual established by the general partner
partnership's assets. Your partner- dividend rate on the most recently with respect to such quarter, in
ship has made distributions in the issued AIMCO non-convertible accordance with their respective
past and is projected to made preferred stock which ranks on a interests in the AIMCO Operating
distributions in 1998. parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
S-68
<PAGE> 2090
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and such Preferred OP Units and the OP Units. The AIMCO Operating Part-
transferee will be substituted in Preferred OP Units are not listed nership Agreement restricts the
place of the transferor if (1) such on any securities exchange. The transferability of the OP Units.
sale is not of a fraction of a Preferred OP Units are subject to Until the expiration of one year
unit, except in limited restrictions on transfer as set from the date on which an OP
circumstances, (2) the transfer and forth in the AIMCO Operating Unitholder acquired OP Units,
transferee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such
deliver to the general partner an OP Unitholder may not transfer all
instrument evidencing the transfer, Pursuant to the AIMCO Operating or any portion of its OP Units to
(3) the transferor pays a transfer Partnership Agreement, until the any transferee without the consent
fee, (4) the general partner expiration of one year from the of the general partner, which
consents to such transfer in date on which a holder of Preferred consent may be withheld in its sole
writing, which consent will not be OP Units acquired Preferred OP and absolute discretion. After the
granted if such transfer would: (a) Units, subject to certain expiration of one year, such OP
result in the termination of your exceptions, such holder of Unitholder has the right to
partnership for tax purposes, Preferred OP Units may not transfer transfer all or any portion of its
result in your partnership being all or any portion of its Pre- OP Units to any person, subject to
taxed as an association, (b) ferred OP Units to any transferee the satisfaction of certain
violate any applicable securities without the consent of the general conditions specified in the AIMCO
laws, (c) reduce the depreciation partner, which consent may be Operating Partnership Agreement,
available to other partner or (d) withheld in its sole and absolute including the general partner's
the units would not be a suitable discretion. After the expiration of right of first refusal. See
investment for the transferee and one year, such holders of Preferred "Description of OP Units --
(5) the assignor and assignee have OP Units has the right to transfer Transfers and Withdrawals" in the
complied with such other conditions all or any portion of its Preferred accompanying Prospectus.
as set forth in your partnership's OP Units to any person, subject to
agreement of limited the satisfaction of
</TABLE>
S-69
<PAGE> 2091
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
partnership. certain conditions specified in the After the first anniversary of
AIMCO Operating Partnership Agree- becoming a holder of Common OP
There are no redemption rights ment, including the general Units, an OP Unitholder has the
associated with your units. partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Part
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-70
<PAGE> 2092
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner but may receive reimbursement for expenses
generated in that capacity from your partnership. The property manager received
management fees of $104,498 in 1996, $111,851 in 1997 and $54,902 for the first
six months of 1998. The AIMCO Operating Partnership has no current intention of
changing the fee structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-71
<PAGE> 2093
YOUR PARTNERSHIP
GENERAL
Lake Eden Associates, L.P. is a Delaware limited partnership which raised
net proceeds of approximately $2,045,000 in 1985 through a private offering. The
promoter for the private offering of your partnership was Jacques-Miller.
Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in
October, 1998. There are currently a total of 64 limited partners of your
partnership and a total of 35.3 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the single apartment property
described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on January 11, 1985 for the purpose of owning
and operating a single apartment property located in Columbus, Ohio, known as
"Lake Eden/Lebanon Station Apartments." Your partnership's property consists of
387 apartment units. There are 184 one-bedroom apartments, 173 two-bedroom
apartments and 30 three-bedroom apartments. The total rentable square footage of
your partnership's property is 293,708 square feet. Your partnership's property
had an average occupancy rate of approximately 96.90% in 1996 and 96.90% in
1997. The average annual rent per apartment unit is approximately $5,432.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1991, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $104,498, $111,851 and $54,902, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2008
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-72
<PAGE> 2094
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $7,041,590, payable to Marine Midland and Bank of America, which
bears interest at a rate of 7.60%. The mortgage debt is due in November 2002.
Your partnership also has a second mortgage note outstanding of $250,216, on the
same terms as the current mortgage note. Your partnership's agreement of limited
partnership also allows the general partner of your partnership to lend funds to
your partnership. Currently, the general partner of your partnership has no loan
outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-73
<PAGE> 2095
Below is selected financial information for Lake Eden Associates, L.P.
taken from the financial statements described above. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
LAKE EDEN ASSOCIATES, L.P.
----------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents........... 116,610 279,320 527,854 490,515 498,480 205,832 288,458
Land & Building..................... 8,910,087 8,598,264 8,847,926 8,506,837 8,377,553 8,243,198 8,106,287
Accumulated Depreciation............ (6,088,595) (5,894,872) (5,991,733) (5,798,010) (5,618,612) (5,440,530) (4,963,087)
Other Assets........................ 710,885 638,551 541,699 626,587 720,499 962,690 878,818
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Assets............... 3,648,988 3,621,263 3,925,746 3,825,929 3,977,920 3,971,190 4,310,476
========== ========== ========== ========== ========== ========== ==========
Mortgage & Accrued Interest......... 6,999,503 7,173,872 7,088,397 7,245,235 7,388,963 7,520,678 7,641,385
Other Liabilities................... 225,255 263,879 477,691 410,389 374,842 342,658 288,523
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities.......... 7,224,758 7,437,751 7,566,088 7,655,624 7,763,805 7,863,336 7,929,908
---------- ---------- ---------- ---------- ---------- ---------- ----------
Partners Capital (Deficit).......... (3,575,771) (3,816,488) (3,640,342) (3,829,695) (3,785,885) (3,892,146) (3,619,432)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LAKE EDEN ASSOCIATES, L.P.
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Rental Revenue............................. 1,023,476 1,035,153 2,112,517 2,003,086 1,952,779 1,891,415 1,851,266
Other Income............................... 66,641 70,416 137,164 112,168 122,979 127,400 104,441
--------- --------- --------- --------- --------- --------- ---------
Total Revenue..................... 1,090,117 1,105,569 2,249,681 2,115,254 2,075,758 2,018,815 1,955,707
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses......................... 467,873 525,909 927,690 999,362 840,566 846,381 845,721
General & Administrative................... 43,187 32,754 59,886 59,403 56,641 71,578 73,921
Depreciation............................... 96,862 96,862 193,723 179,399 193,531 477,444 464,998
Interest Expense........................... 279,607 287,853 652,111 664,592 676,651 664,007 675,753
Property Taxes............................. 85,371 85,597 163,531 164,008 164,221 163,958 139,228
--------- --------- --------- --------- --------- --------- ---------
Total Expenses.................... 972,900 1,028,975 1,996,941 2,066,764 1,931,610 2,223,368 2,199,621
--------- --------- --------- --------- --------- --------- ---------
Net Income................................. 117,218 76,594 252,740 48,490 144,148 (204,553) (243,914)
========= ========= ========= ========= ========= ========= =========
</TABLE>
S-74
<PAGE> 2096
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $117,218 for the six months ended
June 30, 1998, compared to $76,594 for the six months ended June 30, 1997. The
increase in net income of $40,624, or 53.04% was primarily the result of a
decrease in operating expenses partially offset by a slight decrease in total
revenues. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,090,117 for the six months ended June 30, 1998, compared to $1,105,569 for
the six months ended June 30, 1997, a decrease of $15,452, or 1.40%.
Expenses
Operating expenses, consisting of, utilities net of reimbursements received
from tenants, contract services, turnover costs, repairs and maintenance,
advertising and marketing, and insurance, totaled $467,873 for the six months
ended June 30, 1998, compared to $525,909 for the six months ended June 30,
1997, a decrease of $58,036 or 11.04%. This decrease was primarily due to a
decrease in exterior painting and other non-capitalizable property improvement
expenses. Management expenses totaled $54,902 for the six months ended June 30,
1998, compared to $55,956 for the six months ended June 30, 1997, a decrease of
$1,054, or 1.88%.
General and Administrative Expenses
General and administrative expenses totaled $43,187 for the six months
ended June 30, 1998 compared to $32,754 for the six months ended June 30, 1997,
an increase of $10,433 or 31.85%. The increase is primarily due to increases in
asset management fees and general partner reimbursements.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $279,607 for the six months ended June 30, 1998, compared to
$287,853 for the six months ended June 30, 1997, a decrease of $8,246, or 2.86%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $252,740 for the year ended
December 31, 1997, compared to $48,490 for the year ended December 31, 1996. The
increase in net income of $204,250, or 421.22% was primarily the result of an
increase in rental revenue and other income and a decrease in operating
expenses. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,249,681 for the year ended December 31, 1997, compared to $2,115,254 for the
year ended December 31, 1996, an increase of $134,427, or 6.36%. This increase
was primarily the result of an increase in occupancy.
S-75
<PAGE> 2097
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $927,690 for the
year ended December 31, 1997, compared to $999,362 for the year ended December
31, 1996, a decrease of $71,672 or 7.17%. This decrease was primarily due to a
decrease in costs associated with non-capitalizable exterior improvements.
Management expenses totaled $111,851 for the year ended December 31, 1997
compared to $104,498 for the year ended December 31, 1996. The increase of
$7,353 or 7.04% is due to an increase in revenue as management fees are
calculated based on a percentage of revenue.
General and Administrative Expenses
General and administrative expenses totaled $59,886 for the year ended
December 31, 1997 compared to $59,403 for the year ended December 31, 1996, an
increase of $483 or 0.81%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $652,111 for the year ended December 31, 1997, compared to
$664,592 for the year ended December 31, 1996, a decrease of $12,481, or 1.88%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $48,490 for the year ended
December 31, 1996 compared to $144,148 for the year ended December 31, 1995. The
decrease of $95,658 or 66.36% was primarily due to an increase in operating
expenses offset by an increase in total revenue. These factors will be discussed
in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,115,254 for the year ended December 31, 1996, compared to $2,075,758 for the
year ended December 31, 1995, an increase of $39,496, or 1.90%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $999,362 for the
year ended December 31, 1996,compared to $840,566 for the year ended December
31, 1995, an increase of $158,796 or 18.89%. This increase was primarily the
result of an increase in exterior renovation expenditures. Management expenses
totaled $104,498 for the year ended December 31, 1996, compared to $103,202 for
the year ended December 31, 1995, an increase of $1,296, or 1.26%.
General and Administrative Expenses
General and administrative expenses totaled $59,403 for the year ended
December 31, 1996 compared to $56,641 for the year ended December 31, 1995, an
increase of $2,762 or 4.88%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $664,592 for the year ended December 31, 1996, compared to
$676,651 for the year ended December 31, 1995, a decrease of $12,059, or 1.78%.
S-76
<PAGE> 2098
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $116,610 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partners of your partnership are
not liable to your partnership or any limited partner for any acts performed by
any of them or any failure to act in the absence of gross negligence or willful
malfeasance. As a result, unitholders might have a more limited right of action
in certain circumstances than they would have in the absence of such a provision
in your partnership's agreement of limited partnership. The general partner of
your partnership is owned by AIMCO. See "Conflicts of Interest."
Your partnership's agreement of limited partnership does not provide for
the indemnification of the general partners or their affiliates for any acts or
omissions performed by them on behalf of your partnership.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below. Amounts paid in the indicated quarter were determined
based upon operations of your partnership during the preceding quarter.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $1,800.00
1995........................................................ 1000.00
1996........................................................ 2,436.20
1997........................................................ 1,673.23
1998 (through June 30)...................................... 1,319.86
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that the
number of units transferred in sale transactions
S-77
<PAGE> 2099
(excluding transactions believed to be between related parties, family
members or the same beneficial owner) was as follows:
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1994......................... 0
1995......................... 0
1996......................... 0
1997......................... 0.5% 1.41% 1
1998 (through June 30)....... 0
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in its capacity as general partner of your
partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $46,540
1995........................................................ 51,604
1996........................................................ 67,256
1997........................................................ 67,076
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995............................................ $103,202
1996............................................ 104,498
1997............................................ 111,851
1998 (through June 30).......................... 54,902
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
S-78
<PAGE> 2100
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stranger's Fees............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The audited financial statements of Lake Eden Associates, L.P. at December
31, 1997, and December 31, 1996, and for the years then ended, appearing in this
Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
S-79
<PAGE> 2101
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-7
Balance Sheets as of December 31, 1997 and 1996............. F-8
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1997 and 1996............ F-9
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-10
Notes to Financial Statements............................... F-11
Independent Auditors' Report................................ F-15
Balance Sheets as of December 31, 1996 and 1995............. F-16
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1996 and 1995............ F-17
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-18
Notes to Financial Statements............................... F-19
</TABLE>
F-1
<PAGE> 2102
LAKE EDEN, LIMITED
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 116,610
Receivables and Deposits.................................... 59,389
Investments................................................. 0
Restricted Escrows.......................................... 419,863
Other Assets................................................ 231,634
Investment Property:
Land................................................... $ 517,000
Building and related personal property................. 5,253,903
-----------
8,393,087
Less: Accumulated depreciation......................... (6,088,595) 2,821,492
----------- -----------
Total Assets:..................................... $ 3,648,988
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 60,288
Other Accrued Liabilities................................... 46,180
Property Taxes Payable...................................... 85,371
Tenant Security Deposits.................................... 57,542
Notes Payable............................................... 6,975,378
Partners' Capital........................................... (3,575,771)
-----------
Total Liabilities and Partners' Capital........... $ 3,648,988
===========
</TABLE>
F-2
<PAGE> 2103
LAKE EDEN, LIMITED
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Rental Income............................................. $1,023,476 $1,035,153
Other Income.............................................. 66,641 70,416
---------- ----------
Total Revenues:................................... 1,090,117 1,105,569
Expenses:
Operating Expenses........................................ 467,873 525,909
General and Administrative Expenses....................... 43,187 32,754
Depreciation Expense...................................... 96,862 96,862
Interest Expense.......................................... 279,607 287,853
Property Tax Expense...................................... 85,371 85,597
---------- ----------
Total Expenses:................................... 972,900 1,028,975
---------- ----------
Net (Income) Loss................................. $ 117,217 $ 76,594
========== ==========
</TABLE>
F-3
<PAGE> 2104
LAKE EDEN, LIMITED
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDING JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
-------- ---------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $117,217 $ 76,594
Adjustments to reconcile net income (loss)to net cash
provided by operating Activities:...................... -- --
Depreciation and Amortization............................. 96,862 100,811
Changes in accounts:...................................... -- --
Receivables and deposits and other assets.............. 39,548 51,247
Accounts Payable and accrued expenses.................. (228,411) (122,384)
-------- ---------
Net cash provided by (used in) operating
activities...................................... 25,216 106,268
-------- ---------
Investing Activities
Property improvements and replacements.................... (62,161) (91,427)
Net (increase)/decrease in restricted escrows............. (7,771) (8,378)
-------- ---------
Net cash provided by (used in) investing
activities...................................... (69,932) (99,805)
-------- ---------
Financing Activities
Payments on mortgage...................................... (113,019) (95,488)
Partners' Distributions................................... (52,545) (63,388)
-------- ---------
Net cash provided by (used in) financing
activities...................................... (165,564) (158,876)
-------- ---------
Net increase (decrease) in cash and cash equivalents...... (210,280) (152,413)
Cash and cash equivalents at beginning of year............ 326,890 431,733
-------- ---------
Cash and cash equivalents at end of period........ $116,610 $ 279,320
======== =========
</TABLE>
F-4
<PAGE> 2105
LAKE EDEN, LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Lake Eden, Limited as of
June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and all such adjustments
are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 2106
LAKE EDEN, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-6
<PAGE> 2107
INDEPENDENT AUDITORS' REPORT
General Partners
Lake Eden, Limited:
We have audited the accompanying balance sheets of Lake Eden, Limited as of
December 31, 1997 and 1996, and the related statements of operations and changes
in partners' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lake Eden, Limited as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
February 17, 1998
F-7
<PAGE> 2108
LAKE EDEN, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 326,890 $ 431,733
Receivable and deposits..................................... 200,964 149,984
Restricted escrows (Note B)................................. 412,092 395,154
Other assets................................................ 129,607 140,231
Investment properties (Note C):
Land...................................................... 517,000 517,000
Buildings and related personal property................... 8,330,926 7,989,837
----------- -----------
8,847,926 8,506,837
Less accumulated depreciation............................... (5,991,733) (5,798,010)
----------- -----------
2,856,193 2,708,827
----------- -----------
$ 3,925,746 $ 3,825,929
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 204,144 $ 138,257
Tenant security deposit liabilities....................... 62,794 58,782
Accrued taxes............................................. 162,611 163,042
Other liabilities......................................... 48,142 50,308
Mortgage notes payable (Note C)........................... 7,088,397 7,245,235
Partners' deficit........................................... (3,640,342) (3,829,695)
----------- -----------
$ 3,925,746 $ 3,825,929
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-8
<PAGE> 2109
LAKE EDEN, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 2,112,517 $ 2,003,086
Other income.............................................. 137,164 112,168
----------- -----------
Total revenues......................................... 2,249,681 2,115,254
----------- -----------
Expenses:
Operating (Note D)........................................ 927,690 999,362
General and administrative (Note D)....................... 59,886 59,403
Depreciation.............................................. 193,723 179,399
Interest.................................................. 652,111 664,592
Property taxes............................................ 163,531 164,008
----------- -----------
Total expenses......................................... 1,996,941 2,066,764
----------- -----------
Net income.................................................. 252,740 48,490
Distributions to partners................................... (63,387) (92,300)
Partners' deficit at beginning of year...................... (3,829,695) (3,785,885)
----------- -----------
Partners' deficit at end of year............................ $(3,640,342) $(3,829,695)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-9
<PAGE> 2110
LAKE EDEN, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 252,740 $ 48,490
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 193,723 179,399
Amortization of discounts and loan costs............... 80,450 77,975
Change in accounts:
Receivable and deposits.............................. (50,980) 70,925
Other assets......................................... (13,072) --
Accounts payable..................................... 65,887 87,068
Tenant security deposit liabilities.................. 4,012 (1,408)
Accrued taxes........................................ (431) (160)
Other liabilities.................................... (2,166) (49,953)
--------- ---------
Net cash provided by operating activities......... 530,163 412,336
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (341,089) (129,285)
Net (deposits to) receipts from restricted escrows........ (16,938) 2,903
--------- ---------
Net cash used in investing activities............. (358,027) (126,382)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (213,592) (198,007)
Distributions to partners................................. (63,387) (92,300)
--------- ---------
Net cash used in financing activities............. (276,979) (290,307)
--------- ---------
Net decrease in cash and cash equivalents................... (104,843) (4,353)
Cash and cash equivalents at beginning of year.............. 431,733 436,086
--------- ---------
Cash and cash equivalents at end of year.................... $ 326,890 $ 431,733
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 571,661 $ 587,825
========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
F-10
<PAGE> 2111
LAKE EDEN, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Lake Eden, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Delaware pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated January 11,
1985. The Partnership owns and operates a 387 unit apartment residential
complex, Lake Eden/Lebanon Station Apartments, in Columbus, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group ("Insignia"). The property is managed by
Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 25 years and the personal property
assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1997 and 1996 include unamortized deferred
loan costs of $116,535 and $140,231, respectively, which are amortized over the
term of the related borrowing. They are presented net of accumulated
amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
F-11
<PAGE> 2112
LAKE EDEN, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Reserve Escrow -- A portion of the proceeds of the 1992 loan
refinancing was placed into a reserve escrow. The funds
are used for certain repair work, debt service, expenses
and property taxes or insurance. The funds in the reserve
escrow exceed the minimum balance required to be
maintained by the lender during the term of the loan...... $412,092 $395,154
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$63,853, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $7,155,401 $7,368,993
Second mortgage note payable in interest only monthly
installments of $1,585, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 250,216 250,216
---------- ----------
Principal balance at year end............................... 7,405,617 7,619,209
Less unamortized discount................................... (317,220) (373,974)
---------- ----------
$7,088,397 $7,245,235
========== ==========
</TABLE>
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 230,402
1999..................................................... 248,535
2000..................................................... 268,096
2001..................................................... 289,196
2002..................................................... 6,369,388
----------
$7,405,617
==========
</TABLE>
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of prepayment or the present value of the excess of interest
which would be incurred at the stated rate under the notes over the interest
which would be incurred at the Treasury constant maturity for U.S. Government
obligations.
F-12
<PAGE> 2113
LAKE EDEN, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1997 1996
TYPE OF TRANSACTION AMOUNT AMOUNT
- ------------------- -------- --------
<S> <C> <C>
Management fee......................................... $111,851 $104,498
Partnership administration fee......................... $ 20,469 $ 20,840
Reimbursement for services of affiliates............... $ 31,607 $ 30,763
Construction oversight costs........................... $ 15,000 $ 15,653
</TABLE>
F-13
<PAGE> 2114
LAKE EDEN, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-14
<PAGE> 2115
INDEPENDENT AUDITORS' REPORT
General Partners
Lake Eden, Limited:
We have audited the accompanying balance sheets of Lake Eden, Limited as of
December 31, 1996 and 1995, and the related statements of operations and changes
in partners' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lake Eden, Limited as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
February 25, 1997
F-15
<PAGE> 2116
LAKE EDEN, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 431,733 $ 436,086
Restricted -- tenant security deposits.................... 58,782 62,394
Accounts receivable......................................... 4,732 5,835
Escrow for taxes............................................ 86,470 152,680
Restricted escrows (Note B)................................. 395,154 398,057
Other assets................................................ 140,231 163,927
Investment properties (Note C):
Land...................................................... 517,000 517,000
Buildings and related personal property................... 7,989,837 7,860,553
----------- -----------
8,506,837 8,377,553
Less accumulated depreciation............................. (5,798,010) (5,618,612)
----------- -----------
2,708,827 2,758,941
----------- -----------
$ 3,825,929 $ 3,977,920
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 138,257 $ 51,189
Tenant security deposits.................................. 58,782 60,190
Accrued taxes............................................. 163,042 163,202
Other liabilities......................................... 50,308 100,261
Mortgage notes payable (Note C)........................... 7,245,235 7,388,963
Partners' deficit........................................... (3,829,695) (3,785,885)
----------- -----------
$ 3,825,929 $ 3,977,920
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-16
<PAGE> 2117
LAKE EDEN, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 2,003,086 $ 1,952,779
Other income.............................................. 112,168 122,979
----------- -----------
Total revenues......................................... 2,115,254 2,075,758
----------- -----------
Expenses:
Operating (Note D)........................................ 675,927 666,596
General and administrative (Note D)....................... 59,403 56,641
Maintenance............................................... 323,435 173,970
Depreciation.............................................. 179,399 193,531
Interest.................................................. 664,592 676,651
Property taxes............................................ 164,008 164,221
----------- -----------
Total expenses......................................... 2,066,764 1,931,610
----------- -----------
Net income.................................................. 48,490 144,148
Distributions to partners................................... (92,300) (37,887)
Partners' deficit at beginning of year...................... (3,785,885) (3,892,146)
----------- -----------
Partners' deficit at end of year............................ $(3,829,695) $(3,785,885)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-17
<PAGE> 2118
LAKE EDEN, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 48,490 $ 144,148
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 179,399 193,531
Amortization of discounts and loan costs............... 77,975 75,540
Change in accounts:
Restricted cash...................................... 3,612 539
Accounts receivable.................................. 1,103 (3,401)
Escrow for taxes..................................... 66,210 214,247
Accounts payable..................................... 87,068 14,556
Tenant security deposit liabilities.................. (1,408) (5,166)
Accrued taxes........................................ (160) 226
Other liabilities.................................... (49,953) 22,568
--------- ---------
Net cash provided by operating activities......... 412,336 656,788
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (129,285) (149,804)
Deposits to restricted escrows............................ (16,798) (16,503)
Receipts from restricted escrows.......................... 19,701 24,153
--------- ---------
Net cash used in investing activities............. (126,382) (142,154)
--------- ---------
Cash flows from financing activities:
Payments on mortgage notes payable........................ (198,007) (183,560)
Distributions to partners................................. (92,300) (37,887)
--------- ---------
Net cash used in financing activities............. (290,307) 221,447
--------- ---------
Net (decrease) increase in cash and cash equivalents........ (4,353) 293,187
Cash and cash equivalents at beginning of year.............. 436,086 142,899
--------- ---------
Cash and cash equivalents at end of year.................... $ 431,733 $ 436,086
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 587,825 $ 601,692
========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
F-18
<PAGE> 2119
LAKE EDEN, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Lake Eden, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Delaware pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated January 11,
1985. The Partnership owns and operates a 387 unit apartment residential
complex, Lake Eden/ Lebanon Station Apartments, in Columbus, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group ("Insignia"). The property is managed by
Insignia Management Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 25 years and the personal property
assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1996 and 1995 consist of deferred loan costs
which are amortized over the term of the related borrowing. They are presented
net of accumulated amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
F-19
<PAGE> 2120
LAKE EDEN, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are used for certain repair work,
debt service, expenses and property taxes or insurance.
The funds in the reserve escrow exceed the minimum balance
required to be maintained by the lender during the term of
the loan.................................................. $395,154 $398,057
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$63,853, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $7,368,993 $7,567,000
Second mortgage note payable in interest only monthly
installments of $1,585, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 250,216 250,216
---------- ----------
Principal balance at year end............................... 7,619,209 7,817,216
Less unamortized discount................................... (373,974) (428,253)
---------- ----------
$7,245,235 $7,388,963
========== ==========
</TABLE>
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 213,591
1998..................................................... 230,402
1999..................................................... 248,535
2000..................................................... 268,096
2001..................................................... 289,196
Thereafter............................................... 6,369,389
----------
$7,619,209
==========
</TABLE>
The principal balance of the mortgage notes may not be prepaid, in whole or
in part, prior to November 15, 1997. Thereafter the principal may be prepaid in
whole upon payment of a penalty of the greater of one percent of the unpaid
principal balance at the time of prepayment or the present value of the excess
of interest which would be incurred at the stated rate under the notes over the
interest which would be incurred at the Treasury constant maturity for U.S.
Government obligations.
F-20
<PAGE> 2121
LAKE EDEN, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1996 1995
TYPE OF TRANSACTION AMOUNT AMOUNT
- ------------------- -------- --------
<S> <C> <C>
Management fee......................................... $104,498 $103,202
Partnership administration fee......................... $ 20,840 $ 20,583
Reimbursement for services of affiliates............... $ 30,763 $ 28,725
Construction oversight fee............................. $ 15,653 $ 2,296
</TABLE>
F-21
<PAGE> 2122
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 2123
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 2124
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 2125
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
LANDMARK ASSOCIATES, LTD.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 2126
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-15
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-18
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Landmark
Associates, Ltd............................ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-35
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-37
Future Plans of the AIMCO Operating
Partnership................................ S-37
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-38
Effects of the Offer......................... S-40
Certain Legal Matters........................ S-40
Fees and Expenses............................ S-41
Accounting Treatment......................... S-41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-42
Distributions................................ S-42
Allocation................................... S-43
Liquidation Preference....................... S-43
Redemption................................... S-44
Voting Rights................................ S-44
Restrictions on Transfer..................... S-44
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-47
CERTAIN FEDERAL INCOME TAX MATTERS............. S-50
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-50
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-50
Tax Consequences of Exchanging Units Solely
for Cash................................... S-51
Adjusted Tax Basis........................... S-51
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-52
Passive Activity Losses...................... S-52
Foreign Offerees............................. S-53
Certain Tax Consequences to Non-Tendering and
Partially-Tendering Unitholders............ S-53
VALUATION OF UNITS............................. S-54
FAIRNESS OF THE OFFER.......................... S-55
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-55
Fairness to Unitholders who Tender their
Units...................................... S-56
Fairness to Unitholders who do not Tender
their Units................................ S-57
Comparison of Consideration to Alternative
Consideration.............................. S-57
Allocation of Consideration.................. S-58
STANGER ANALYSIS............................... S-58
Experience of Stanger........................ S-59
Summary of Materials Considered.............. S-59
Summary of Reviews........................... S-60
Conclusions.................................. S-60
Assumptions, Limitations and
Qualifications............................. S-60
Compensation and Material Relationships...... S-61
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-62
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
CONFLICTS OF INTEREST.......................... S-71
Conflicts of Interest with Respect to the
Offer...................................... S-71
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-71
Competition Among Properties................. S-71
Features Discouraging Potential Takeovers.... S-71
Future Exchange Offers....................... S-72
</TABLE>
i
<PAGE> 2127
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUR PARTNERSHIP............................... S-72
General...................................... S-72
Your Partnership and its Property............ S-72
Property Management.......................... S-72
Investment Objectives and Policies; Sale or
Financing of Investments................... S-72
Capital Replacement.......................... S-73
Borrowing Policies........................... S-73
Competition.................................. S-73
Legal Proceedings............................ S-73
Selected Financial Information............... S-73
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-75
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-77
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-77
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-78
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-79
LEGAL MATTERS.................................. S-79
EXPERTS........................................ S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 2128
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Landmark Associates, Ltd. For each unit that you tender, you may choose to
receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million , total debt of $1,626 million and
stockholders' equity of $1,844 million .
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 2129
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
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- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $246.13 per unit for the six months
ended June 30, 1998 (equivalent to $492.26 on an annual basis). We will pay
fixed quarterly distributions of $ per unit on the
Tax-Deferral % Preferred OP Units before any distributions are paid to
holders of Tax-Deferral Common OP Units. We pay quarterly distributions on
the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the quarter ended June 30, 1998, we paid distributions of
$1.125 on each of the Tax-Deferral Common OP Units (equivalent to $2.25 on
an annual basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units or distributions
of $ per year on the number of Tax-Deferral Common OP Units that
you would receive in an exchange for each of your partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
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<PAGE> 2131
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of
units without the consent of the general partner. Such consent may be
withheld by the general partner in its sole discretion. The general partner
may withhold its consent if such transfer would result in the termination
of your partnership for tax purposes which will occur if more than 50% or
more of the total interests in your partnership are transferred within a
12-month period. If we acquire a significant percentage of the interest in
your partnership, the general partner may not consent to a transfer for a
12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership.
In addition, there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month
period, including sales or exchanges resulting from the offer, your
partnership will terminate for Federal income tax purposes. Any such
termination may, among other things, subject the assets of your partnership
to longer depreciable lives than those currently applicable to the assets
of your partnership. This would generally decrease the annual average
depreciation deductions allocable to you if you do not tender all of your
units (thereby increasing the taxable income allocable to your units each
year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF
YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX
SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
OFFER.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration of $ in cash per
unit is fair. However, your units are not listed on any national securities
exchange nor quoted on the NASDAQ System, and there is no established
trading market for your units. Secondary sales activity for the units has
been limited and sporadic. Your general partner does not monitor or
regularly receive or maintain information regarding the prices at which
secondary sale transactions in the units have been effectuated.
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Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
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<PAGE> 2133
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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<PAGE> 2134
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit date compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
S-7
<PAGE> 2135
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
S-8
<PAGE> 2136
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if 50% or more of the total interests in your
partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
S-9
<PAGE> 2137
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
S-10
<PAGE> 2138
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain
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pension trusts, registered investment companies and Mr. Considine). Our charter
also prohibits anyone from buying shares if the purchase would result in us
losing our REIT status. If you or anyone else acquires shares in excess of the
ownership limit or in violation of the ownership requirements of the Internal
Revenue Code for REITs, the transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. In addition to the general
partner interest, we currently do not own any limited partnership interest in
your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the
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continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. We believe
it is possible that the private resale market for apartment and retail
properties could improve over time, making a sale of your partnership's
property in a private transaction at some point in the future a more viable
option than it is currently. However, there are several risks and
disadvantages that result from continuing the operations of your
partnership without the offer. Your partnership faces maturity or balloon
payment dates on its mortgage loans and must either obtain refinancing or
sell its property. If your partnership were to continue operating as
presently structured, it could be forced to borrow on terms that could
result in net losses from operations. In addition, continuation of your
partnership without the offer would deny you and your partners the benefits
that your general partner expects to result from the offer. For example, a
partner of your partnership would have no opportunity for liquidity unless
he were to sell his units in a private transaction. Any such sale would
likely be at a very substantial discount from the partner's pro rata share
of the fair market value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future
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increase in the AIMCO stock price and from any future increase in
distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
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Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common
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OP Units. You will recognize a gain or loss for Federal income tax purposes
on units you sell for cash. The exchange of your units for cash and OP Units
will be treated, for Federal income tax purposes, as a partial sale of such
units for cash and as a partial tax-free contribution of such units to our
operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" OF THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
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In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the number of limited partner
interests it may issue while the AIMCO Operating Partnership is not subject to
such limitations.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner of your partnership but may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $35,967 in 1996, $35,122 in 1997 and $16,115 for the
first six months of 1998. We have no current intention of changing the fee
structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Landmark Associates, Ltd. is a Tennessee
limited partnership which was formed on July 30, 1982 for the purpose of owning
and operating a single apartment property located in
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Florence, South Carolina, known as "Landmark Woods Apartments." In 1982, it
completed a private placement of units that raised net proceeds of approximately
$1,132,000. Landmark Woods Apartments consists of 104 apartment units. Your
partnership has no employees.
Property Management. Since December 1991, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2025, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of June 30, 1998, your partnership had
a current mortgage note outstanding of $2,448,213, payable to State Street and
Lehman, which bears interest at a rate of 7.29%. The mortgage debt is due in
January 2028. Your partnership's agreement of limited partnership also allows
your general partner to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase
all of the units sought in our offer, if such units are tendered for cash. We
will obtain all such funds from cash from operations, equity issuances and short
term borrowings.
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SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 2148
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 2149
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
---------- ---------
77,498 135,378
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
---------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
---------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
---------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
---------- ---------
Net income........................................ $ 10,579 $ (38,135)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $ 121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 2150
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 2151
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $ 10,579 $(38,135)
HUD release fee and legal reserve.................. -- 10,202
Real estate depreciation, net of minority
interests........................................ 43,391 81,936
Amortization of management contracts............... 5,773 11,546
Amortization of management company goodwill........ 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation......................... -- 1,715
Amortization of management company goodwill...... 959 1,918
Amortization of management contracts............. 15,345 29,951
Deferred taxes................................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation......................... 60,297 104,471
Interest on convertible debentures................. (5,012) (10,003)
Preferred unit distributions....................... (15,107) (30,214)
-------- --------
Funds from operations.............................. $121,674 $170,742
======== ========
</TABLE>
S-24
<PAGE> 2152
SUMMARY FINANCIAL INFORMATION OF LANDMARK ASSOCIATES, LTD.
The summary financial information of Landmark Associates, Ltd. for the six
months ended June 30, 1998 and 1997 is unaudited. The summary financial
information for Landmark Associates, Ltd. for the years ended December 31, 1997
and 1996 and 1995 is derived from audited financial statements. This information
should be read in conjunction with such financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Your Partnership" included herein. See "Index to
Financial Statements."
LANDMARK ASSOCIATES, LTD.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues.......................... 314,774 374,345 704,178 734,931 708,849 648,266 627,563
Net Income/(Loss)..................... 30,495 85,329 77,602 91,366 70,024 91,415 67,481
Balance Sheet Data:
Real Estate, Net of Accumulated
Depreciation........................ 781,258 790,940 776,688 803,479 812,154 834,210 868,854
Total Assets.................... 1,266,632 1,173,624 1,559,097 1,125,783 1,161,956 1,104,435 1,176,166
Mortgage Notes Payable, including
Accrued Interest...................... 2,488,273 2,107,679 2,500,000 2,124,870 2,157,776 2,203,091 2,243,348
Partners' Capital/(Deficit)............. (1,266,633) (989,401) (997,128) (1,074,730) (1,066,103) (1,136,127) (1,137,462)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per Common OP Unit and
historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $ 1.125 $1.85 $246.13 $0.00
</TABLE>
S-25
<PAGE> 2153
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
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LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights, title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
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marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or Common OP Units may be
redeemed for shares of Class I Preferred Stock or Class A Common Stock.
Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common
Stock at the time at which OP Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $ , current annualized distributions with
respect to the Common OP Units are $2.25, and distributions with respect to your
units for the six months ended June, 1998 were $246.13 per unit (equivalent to
$492.26 on an annualized basis). This is equivalent to distributions of $
per year on the number of Tax-Deferral % Preferred OP Units, or distributions
of $ per year on the number of Tax-Deferral Common OP Units, that you would
receive in an exchange for each of your partnership's units. Therefore,
distributions with respect to the Preferred OP Units and Common OP Units that we
are offering are expected to be , immediately following our offer, than
the distributions with respect to your units. See "Comparison of Ownership of
Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership
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were to be reduced, and you do not tender all of your units pursuant to our
offer, you will be treated as receiving a hypothetical distribution of cash
resulting from a decrease in your share of the liabilities of your partnership.
Any such hypothetical distribution of cash would be treated as a nontaxable
return of capital to the extent of your adjusted tax basis in your units and
thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES.
If there is a sale or exchange of 50% or more of the total interest in capital
and profits of your partnership within any 12-month period, including sales or
exchanges resulting from the offer, your partnership will terminate for Federal
income tax purposes. Any such termination may, among other things, subject the
assets of your partnership to longer depreciable lives than those currently
applicable to the assets of your partnership. This would generally decrease the
annual average depreciation deductions allocable to you if you do not tender all
of your units (thereby increasing the taxable income allocable to your units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if 50% or more of the total interests in your
partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
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Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to
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continue operating as presently structured, your partnership could be forced to
borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of considerations being offered, or increasing or decreasing the
percentage of outstanding units being sought). Notice of any such extension,
termination or amendment will promptly be disseminated in a manner reasonably
designed to inform unitholders of such change. In the case of an extension of
the offer, the extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., Denver, Colorado
time, on the next business day after the scheduled expiration date of the offer,
in accordance with Rule 14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998 (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998 (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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<PAGE> 2173
in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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<PAGE> 2174
COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING UNITHOLDERS
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). It is possible that the AIMCO Operating Partnership's
acquisition of units pursuant to the offer could result in a Termination of your
partnership. If a purchase of units results in a Termination, the following
Federal income tax events will be deemed to occur with respect to such
Termination: the terminated Partnership (the "Old Partnership") will be deemed
to have contributed all of its assets (subject to its liabilities) (the
"Hypothetical Contribution") to a new partnership (the "New Partnership") in
exchange for an interest in the New Partnership and, immediately thereafter, the
Old Partnership will be deemed to have distributed interests in the New
Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership
and unitholders who do not tender all of their units (a "Remaining Unitholders")
in proportion to their respective interests in the Old Partnership in
liquidation of the Old Partnership.
A Remaining Unitholder will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Unitholders in the Old Partnership will carry over
intact into the New Partnership. Any Termination may change (and possibly
shorten) a Remaining Unitholder's holding period with respect to its units in
your partnership for Federal income tax purposes.
The New Partnership's adjusted tax basis in its assets will carry over from
the Old Partnership's basis in such assets immediately before the Termination.
Any Termination may also subject the assets of the New Partnership to
depreciable lives in excess of those currently applicable to the Old
Partnership. This would generally decrease the annual average depreciation
deductions allocable to the Remaining Unitholders following consummation of the
offer (thereby increasing the taxable income allocable to their retained units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership.
Section 704(c) of the Code will apply to future allocation of income, gain,
loss and deductions with respect to any New Partnership assets among the AIMCO
Operating Partnership and the Remaining Unitholders following the consummation
of the offer only to the extent that such assets were Section 704(c) property in
the hands of the Old Partnership immediately prior to the Hypothetical
Contribution. Moreover, subject to the Code's anti-abuse regulations, the New
Partnership will not be required to apply the same Section 704(c) allocation
method applied by the Old Partnership. The Hypothetical Contribution will not
trigger a new five-year holding period for purposes of measuring
post-contribution appreciation of assets for the unitholder who contributed such
assets.
Elections as to certain tax matters previously made by the Old Partnership
prior to Termination will not be applicable to the New Partnership unless the
New Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all unitholders. In the case of a Remaining Unitholder reporting on a
tax year other than a calendar year, the closing of your partnership's taxable
year may result in more than 12 months' taxable income or loss of the Old
Partnership being includible in such unitholder's taxable income for the year of
Termination.
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YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location, and above-average market mortgage interest rates.
In addition, we considered the recent decline in the market for equity
securities, including those of REITs, and the decline in the availability of
commercial mortgage financing. Although the direct capitalization method is a
widely accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $ , current annualized distributions of $2.25 with respect
to the Common OP Units and distributions with respect to your units for the
six months ended June, 1998 were $246.13 (equivalent to $492.26 on an
annualized basis). This is equivalent to distributions of $ per year on
the number of Tax-Deferral % Preferred OP Units, or distributions of
$ per year on the number of Tax-Deferral Common OP Units, that you
would receive in exchange for each of your partnership's units. Therefore,
distributions with respect to the Preferred OP Units and Common OP Units
being offered are expected to be , immediately following the offer,
than the distributions with respect to your units. See "Comparison of
Ownership of Your Units and AIMCO OP Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
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partner of your partnership and the AIMCO Operating Partnership believe
that the valuation method described in "Valuation of Units" provides a
meaningful indication of value for residential apartment properties although
there are other ways to value real estate. A liquidation in the future might
generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
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COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
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The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning,
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among other things, any environmental liabilities, deferred maintenance and
estimated capital expenditure and replacement reserve requirements, the
determination and valuation of non-real estate assets and liabilities of your
partnership, the allocation of your partnership's net values between the general
partner, special limited partner and limited partners of your partnership, the
terms and conditions of any debt encumbering the partnership's property, and the
transaction costs and fees associated with a sale of the property. Stanger also
relied upon the assurance of your partnership, AIMCO, and the management of the
partnership's property that any financial statements, budgets, pro forma
statements, projections, capital expenditure estimates, debt, value estimates
and other information contained in this Prospectus Supplement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Tennessee law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing Landmark Woods Apartments. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Available Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2025. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to purchase, hold, The purpose of the AIMCO Operating Partnership is to
lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by
Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the
agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as
perform all acts necessary, advisable or convenient to amended from time to time, or any successor to such
the business of your partnership including acquiring statute) (the "Delaware Limited Partnership Act"),
additional real or personal property, borrowing money provided that such business is to be conducted in a
and creating liens. manner that permits AIMCO to be qualified as a REIT,
unless AIMCO ceases to qualify as a REIT. The AIMCO
Operating Partnership is authorized to perform any and
all acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interest in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling not more than 1,132 units for cash time to the limited partners and to other persons, and
and notes to selected persons who fulfill the to admit such other persons as additional limited
requirements set forth in your partnership's agreement partners, on terms and conditions and for such capital
of limited partnership. The capital contribution need contributions as may be established by the general
not be equal for all limited partners and no action or partner in its sole discretion. The net capital
consent is required in connection with the admission of contribution need not be equal for all OP Unitholders.
any additional limited partners. No action or consent by the OP Unitholders is required
in connection with the admission of any additional OP
Unitholder. See "Description of OP Units -- Management
by the AIMCO GP" in the accompanying Prospectus.
Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one
or more series of any of such classes, with such
designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership The AIMCO Operating Partnership may lend or contribute
sets forth agreements between your partnership and the funds or other assets to its subsidiaries or other
general partner and certain of its affiliates for persons in which it has an equity investment, and such
certain services provided by these parties to your persons may borrow funds from the AIMCO Operating
partnership including property management services. Partnership, on terms and conditions established in the
sole and absolute discretion of the general partner. To
the extent consistent with the business purpose of the
AIMCO Operating Partnership and the permitted
activities of the general partner, the AIMCO Operating
Partnership may transfer assets to joint ventures,
limited liability companies, partnerships,
corporations, business trusts or other business
entities in which it is or thereby becomes a
participant upon such terms and subject to such
conditions consistent with the AIMCO Operating Part-
nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money on the credit of and enter into restrictions on borrowings, and the general partner has
obligations on behalf of your partnership in the full power and authority to borrow money on behalf of
ordinary course of business. Indebtedness incurred the AIMCO Operating Partnership. The AIMCO Operating
other than in the ordinary course of business and that Partnership has credit agreements that restrict, among
associated with the purchase of your partnership's other things, its ability to incur indebtedness. See
property requires the approval of the holders of "Risk Factors -- Risks of Significant Indebtedness" in
greater than 50% of the outstanding units. Such the accompanying Prospectus.
approval is also required for the incurrence on
indebtedness pursuant to a non-recourse loan if the
creditor will acquire, at any time as a result of
making the loan, any direct or indirect interest in the
profits, capital or property of your partnership other
than as a secured creditor.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners to have access to the with a statement of the purpose of such demand and at
current list of the names and addresses of all of the such OP Unitholder's own expense, to obtain a current
limited partners at all reasonable times at the list of the name and last known business, residence or
principal office of the general partner in Tennessee. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the All management powers over the business and affairs of
exclusive right to manage and control your partnership the AIMCO Operating Partnership are vested in AIMCO-GP,
and its business and affairs. The general partner will Inc., which is the general partner. No OP Unitholder
have all the rights and powers which may be possessed has any right to participate in or exercise control or
by a general partner under applicable law and such management power over the business and affairs of the
additional rights and powers which are necessary, AIMCO Operating Partnership. The OP Unitholders have
advisable or convenient to the discharge of its duties the right to vote on certain matters described under
under your partnership's agreement of limited "Comparison of Ownership of Your Units and AIMCO OP
partnership. Except as otherwise provided in your Units -- Voting Rights" below. The general partner may
partnership's agreement of limited partnership, limited not be removed by the OP Unitholders with or without
partners may not take part in nor interfere in any with cause.
the conduct or control of the business of your
partnership and have no right or authority to act for In addition to the powers granted a general partner of
or bind your partnership. a limited partnership under applicable law or that are
granted to the general partner under any other
provision of the AIMCO Operating Partnership Agreement,
the general partner, subject to the other provisions of
the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general
not liable to your partnership or any limited partner partner is not liable to the AIMCO Operating
for any acts performed by any of it or any failure to Partnership for losses sustained, liabilities incurred
act in the absence of gross negligence or willful or benefits not derived as a result of errors in
malfeasance. However, your partnership's agreement of judgment or mistakes of fact or law of any act or
limited partnership does not provide for the omission if the general partner acted in good faith.
indemnification of the general partner or its The AIMCO Operating Partnership Agreement provides for
affiliates for any acts or omissions performed by them indemnification of AIMCO, or any director or officer of
on behalf of your partnership. AIMCO (in its capacity as the previous general partner
of the AIMCO Operating Partnership), the general
partner, any officer or director of general partner or
the AIMCO Operating Partnership and such other persons
as the general partner may designate from and against
all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection
with any actions relating to the operations of the
AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware Limited
Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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<PAGE> 2192
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except in limited circumstances, the general partner
partnership, the limited partners may remove the has exclusive management power over the business and
general partner for cause upon a vote of the limited affairs of the AIMCO Operating Partnership. The general
partners owning a majority of the outstanding units. partner may not be removed as general partner of the
The general partner may not transfer, assign, sell, AIMCO Operating Partnership by the OP Unitholders with
withdraw or otherwise dispose of its interest unless it or without cause. Under the AIMCO Operating Partnership
obtains the prior written consent of those persons Agreement, the general partner may, in its sole
owning more than 50% of the units and satisfies other discretion, prevent a transferee of an OP Unit from
conditions set forth in your partnership's agreement of becoming a substituted limited partner pursuant to the
limited partnership. The consent of all limited AIMCO Operating Partnership Agreement. The general
partners is necessary for the approval of a new general partner may exercise this right of approval to deter,
partner. A limited partner may not transfer his delay or hamper attempts by persons to acquire a
interests without the consent of the general partner. controlling interest in the AIMCO Operating Partner-
ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Amendments of your partnership's agreement of limited With the exception of certain circumstances set forth
partnership may be proposed by the general partners. in the AIMCO Operating Partnership Agreement, whereby
Such proposals will be sent to the limited partners the general partner may, without the consent of the OP
together with a recommendation of the general partners Unitholders, amend the AIMCO Operating Partnership
as to the proposal. The general partner may require a Agreement, amendments to the AIMCO Operating
response within a specified time not less than 30 days Partnership Agreement require the consent of the
from the notice and failure to respond will constitute holders of a majority of the outstanding Common OP
a vote which is consistent with the general partners' Units, excluding AIMCO and certain other limited
recommendation. Approval of such proposals must be exclusions (a "Majority in Interest"). Amendments to
given by the limited partners owning at least 51% of the AIMCO Operating Partnership Agreement may be
the units. proposed by the general partner or by holders of a
Majority in Interest. Following such proposal, the
general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives no fees for its services as general partner capacity as general partner of the AIMCO Operating
but may receive reimbursement for expenses generated in Partnership. In addition, the AIMCO Operating Part-
its capacity as general partner. Moreover, the general nership is responsible for all expenses incurred
partner or certain affiliates may be entitled to relating to the AIMCO Operating Partnership's ownership
compensation for additional services rendered. of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, limited partners are not bound by or negligence, no OP Unitholder has personal liability for
personally liable for the expenses, liabilities or the AIMCO Operating Partnership's debts and
obligations of your partnership in excess of the obligations, and liability of the OP Unitholders for
limited partners' capital contribution, except as the AIMCO Operating Partnership's debts and obligations
provided under applicable law. is generally limited to the amount of their invest-
ment in the AIMCO Operating Partnership. However, the
limitations on the liability of limited partners for
the obligations of a limited partnership have not been
clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must manage and partnership agreement, Delaware law generally requires
control your partnership, its business and affairs to a general partner of a Delaware limited partnership to
the best of its ability and must use its best efforts adhere to fiduciary duty standards under which it owes
to carry out the business of your partnership. The its limited partners the highest duties of good faith,
general partner must devote itself to the business of fairness and loyalty and which generally prohibit such
your partnership to the extent that it, in its general partner from taking any action or engaging in
discretion, deems necessary for the efficient carrying any transaction as to which it has a conflict of
on thereof. The general partner, at all times, has a interest. The AIMCO Operating Partnership Agreement
fiduciary responsibility for the safekeeping and use of expressly authorizes the general partner to enter into,
all partnership funds and assets. However, the partners on behalf of the AIMCO Operating Partnership, a right
may engage in whatever activities they choose, whether of first opportunity arrangement and other conflict
or not it is in competition with your partnership, avoidance agreements with various affiliates of the
without having or incurring any obligation to offer any AIMCO Operating Partnership and the general partner, on
interest in such activities to your partnership and the such terms as the general partner, in its sole and
partners and your partnership and the partners will absolute discretion, believes are advisable. The AIMCO
have no rights in and to such independent business Operating Partnership Agreement expressly limits the
ventures or the income and profits derived therefrom. liability of the general partner by providing that the
general partner, and its officers and directors will
not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or
assignees for errors in judgment or mistakes of fact or
law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
S-66
<PAGE> 2194
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS
PREFERRED OP UNITS
COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
vote of the limited partners owning Operating Partnership Agreement, have voting rights only with
a majority of the outstanding the holders of the Preferred OP respect to certain limited matters
units, the limited partners may Units will have the same voting such as certain amendments and
dissolve and terminate your rights as holders of the Common OP termination of the AIMCO Operating
partnership, remove a general Units. See "Description of OP Partnership Agreement and certain
partner, approve or disapprove the Units" in the accompanying transactions such as the
sale of all or substantially all of Prospectus. So long as any institution of bankruptcy
the assets of your partnership and Preferred OP Units are outstand- proceedings, an assignment for the
approve the incurrence of certain ing, in addition to any other vote benefit of creditors and certain
indebtedness. The consent of all of or consent of partners required by transfers by the general partner of
the limited partners is necessary law or by the AIMCO Operating its interest in the AIMCO Operating
to elect a new gen- Partnership Agree- Part-
</TABLE>
S-67
<PAGE> 2195
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
eral partner. In order for the ment, the affirmative vote or nership or the admission of a
limited partners to amend your consent of holders of at least 50% successor general partner.
partnership's agreement of limited of the outstanding Preferred OP
partnership, the limited partners Units will be necessary for Under the AIMCO Operating Partner-
holding the amount of units effecting any amendment of any of ship Agreement, the general partner
specified under Tennessee law is the provisions of the Partnership has the power to effect the
required. Unit Designation of the Preferred acquisition, sale, transfer,
OP Units that materially and exchange or other disposition of
The general partner may cause the adversely affects the rights or any assets of the AIMCO Operating
dissolution of your partnership by preferences of the holders of the Partnership (including, but not
retiring when there is no remaining Preferred OP Units. The creation or limited to, the exercise or grant
general partner unless all of the issuance of any class or series of of any conversion, option,
limited partners elect a substitute partnership units, including, privilege or subscription right or
general partner within 90 days without limitation, any partner- any other right available in
after the retirement of the general ship units that may have rights connection with any assets at any
partner. senior or superior to the Preferred time held by the AIMCO Operating
OP Units, shall not be deemed to Partnership) or the merger,
materially adversely affect the consolidation, reorganization or
rights or preferences of the other combination of the AIMCO
holders of Preferred OP Units. With Operating Partnership with or into
respect to the exercise of the another entity, all without the
above described voting rights, each consent of the OP Unitholders.
Preferred OP Units shall have one
(1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the AIMCO Operating
Partnership by an "event of
withdrawal," as defined in the
Delaware Limited Partnership Act
(including, without limitation,
bankruptcy), unless, within 90 days
after the withdrawal, holders of a
"majority in interest," as defined
in the Delaware Limited Partnership
Act, agree in writing, in their
sole and absolute discretion, to
continue the business of the AIMCO
Operating Partnership and to the
appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Available Cash $ per Preferred OP Unit; tribute quarterly all, or such
Flow (as defined in your provided, however, that at any time portion as the general partner may
partnership's agreement of limited and from time to time on or after in its sole and absolute discretion
partnership) are made in quarterly the fifth anniversary of the issue determine, of Available Cash (as
installments within 45 days after date of the Preferred OP Units, the defined in the AIMCO Operating
the end of such calendar quarter or AIMCO Operating Partnership may Partnership Agreement) generated by
at such time or times as the adjust the annual distribution rate the AIMCO Operating Partnership
general partner may deem practi- on the Preferred OP Units to the during such quarter to the general
cal. The distributions payable to lower of (i) % plus the annual partner, the special limited
the partners are not fixed in interest rate then applicable to partner and the holders of Common
amount and depend upon the U.S. Treasury notes with a maturity OP Units on the record date
operating results and net sales or of five years, and (ii) the annual established by the general partner
refinancing proceeds available from dividend rate on the most recently with respect to such quarter, in
the disposition of your issued AIMCO non-convertible accordance with their respective
partnership's assets. Your preferred stock which ranks on a interests in the AIMCO Operating
partnership has made distributions parity with its Class H Cumu- Partnership on such record date.
in the past and is projected to Holders of any other Pre-
made distributions in 1998.
</TABLE>
S-68
<PAGE> 2196
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person and such Preferred OP Units and the OP Units. The AIMCO Operating Part-
transferee will be substituted in Preferred OP Units are not listed nership Agreement restricts the
place of the transferor if (1) such on any securities exchange. The transferability of the OP Units.
sale is not of a fraction of a Preferred OP Units are subject to Until the expiration of one year
unit, except in limited restrictions on transfer as set from the date on which an OP
circumstances, (2) the transfer and forth in the AIMCO Operating Unitholder acquired OP Units,
transferee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such
deliver to the general partner OP Unitholder may not transfer all
instruments evidencing the Pursuant to the AIMCO Operating or any portion of its OP Units to
transfer, (3) the transferor pays a Partnership Agreement, until the any transferee without the consent
transfer fee, (4) the general expiration of one year from the of the general partner, which
partner consents to such transfer date on which a holder of Preferred consent may be withheld in its sole
in writing, which consent will not OP Units acquired Preferred OP and absolute discretion. After the
be granted if such transfer will Units, subject to certain expiration of one year, such OP
result in your partnership being exceptions, such holder of Unitholder has the right to
taxed as corporation or would Preferred OP Units may not transfer transfer all or any portion of its
constitute a violation of any all or any portion of its Pre- OP Units to any person, subject to
applicable securities laws and (5) ferred OP Units to any transferee the satisfaction of certain
the assignor and assignee have without the consent of the general conditions specified in the AIMCO
complied with such other conditions partner, which consent may be Operating Partnership Agreement,
as set forth in your partnership's withheld in its sole and absolute including the general partner's
agreement of limited partnership. discretion. After the expiration of right of first refusal. See
one year, such holders of Preferred "Description of OP Units --
There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the
associated with your units. all or any portion of its Preferred accompanying Prospectus.
OP Units to any person, subject to
the satisfaction of
</TABLE>
S-69
<PAGE> 2197
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
certain conditions specified in the After the first anniversary of
AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-70
<PAGE> 2198
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
for its services as general partner but may receive reimbursement for expenses
generated in that capacity. The property manager received management fees of
35,967 in 1996, $35,112 in 1997 and 16,115 for the first six months of 1998. The
AIMCO Operating Partnership has no current intention of changing the fee
structure for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-71
<PAGE> 2199
YOUR PARTNERSHIP
GENERAL
Landmark Associates, Ltd. is a Tennessee limited partnership which raised
net proceeds of approximately $1,132,000 in 1982 through a private offering. The
promoter for the private offering of your partnership was Jacques-Miller.
Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in
October, 1998. There are currently a total of 35 limited partners of your
partnership and a total of 1,132 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the single apartment property
described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on July 30, 1982 for the purpose of owning and
operating a single apartment property located in Florence, South Carolina, known
as "Landmark Woods Apartments." Your partnership's property consists of 104
apartment units. There are 24 one-bedroom apartments, 56 two-bedroom apartments
and 29 three-bedroom apartments. The total rentable square footage of your
partnership's property is 100,472 square feet. The average annual rent per
apartment unit is approximately $5,878.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since December 1991, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $35,967, $35,112 and $16,115, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2025
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
S-72
<PAGE> 2200
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of June 30, 1998, your partnership had a current mortgage note
outstanding of $2,448,273, payable to State Street and Lehman, which bears
interest at a rate of 7.29%. The mortgage debt is due in January 2028. Your
partnership's agreement of limited partnership also allows the general partner
of your partnership to lend funds to your partnership. Currently, the general
partner of your partnership has no loan outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
S-73
<PAGE> 2201
Below is selected financial information for Landmark Associates, Ltd. taken
from the financial statements described above. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
LANDMARK ASSOCIATES, LTD.
------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents........... 179,926 271,297 504,366 200,292 278,154 229,339 218,637
Land & Building..................... 2,896,279 2,850,759 2,864,107 2,835,697 2,789,354 2,761,024 2,747,351
Accumulated Depreciation............ (2,115,020) (2,059,819) (2,087,419) (2,032,218) (1,977,200) (1,926,814) (1,878,497)
Other Assets........................ 305,448 111,387 278,043 122,012 71,648 40,886 88,675
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Assets............... 1,266,633 1,173,624 1,559,097 1,125,783 1,161,956 1,104,435 1,176,166
========== ========== ========== ========== ========== ========== ==========
Mortgage & Accrued Interest......... 2,488,273 2,107,679 2,500,000 2,124,870 2,157,776 2,203,091 2,243,348
Other Liabilities................... 44,993 55,347 56,225 75,643 70,283 37,471 70,280
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities.......... 2,533,266 2,163,026 2,556,225 2,200,513 2,228,059 2,240,562 2,313,628
---------- ---------- ---------- ---------- ---------- ---------- ----------
Partners Capital (Deficit).......... (1,266,633) (989,402) (997,128) (1,074,730) (1,066,103) (1,136,127) (1,137,462)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LANDMARK ASSOCIATES, LTD.
---------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Rental Revenue............................. 282,279 324,467 611,308 623,834 633,965 623,840 608,803
Other Income............................... 32,495 49,878 92,870 111,097 74,884 24,426 18,760
--------- --------- --------- --------- --------- --------- ---------
Total Revenue..................... 314,774 374,345 704,178 734,931 708,849 648,266 627,563
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses......................... 141,101 142,210 324,653 347,015 338,974 303,674 281,912
General & Administrative................... 13,404 18,153 28,080 27,925 40,473 36,068 53,825
Depreciation............................... 27,601 27,601 55,201 55,018 50,386 48,317 46,643
Interest Expense........................... 91,007 89,904 188,029 192,115 184,269 139,010 144,231
Property Taxes............................. 11,166 11,148 21,659 21,492 24,723 29,782 33,471
--------- --------- --------- --------- --------- --------- ---------
Total Expenses.................... 284,279 289,016 617,622 643,565 638,825 556,851 560,082
--------- --------- --------- --------- --------- --------- ---------
Net Income before Extraordinary Item....... 30,495 85,329 86,556 91,366 70,024 91,415 67,481
========= ========= ========= ========= ========= ========= =========
Extraordinary loss......................... (8,954)
--------- --------- --------- --------- --------- --------- ---------
Net Income after Extraordinary Loss........ 30,495 85,329 77,602 91,366 70,024 91,415 67,481
========= ========= ========= ========= ========= ========= =========
</TABLE>
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<PAGE> 2202
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
financial statements of your partnership included herein.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997
Net Income
Your partnership recognized net income of $30,495 for the six months ended
June 30, 1998, compared to $85,329 for the six months ended June 30, 1997. The
decrease in net income of $54,834, or 64.26% was primarily the result of a
decrease in rental revenue. These factors are discussed in more detail in the
following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$314,774 for the six months ended June 30, 1998, compared to $374,345 for the
six months ended June 30, 1997, a decrease of $59,571, or 15.91%. This was
primarily a result of an increase in vacancy and concession losses in 1998.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $141,101 for the
six months ended June 30, 1998, compared to $142,210 for the six months ended
June 30, 1997, a decrease of $1,109 or 0.78%. Management expenses totaled
$16,115 for the six months ended June 30, 1998, compared to $18,387 for the six
months ended June 30, 1997, a decrease of $2,272, or 12.36%. The decrease
resulted from a decrease in rental revenues for 1998, as management fees are
calculated based on a percentage of revenue.
General and Administrative Expenses
General and administrative expenses totaled $13,404 for the six months
ended June 30, 1998 compared to $18,153 for the six months ended June 30, 1997,
a decrease of $4,749 or 26.16%. The decrease is primarily due to decreased
computer maintenance and supplies.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $91,007 for the six months ended June 30, 1998, compared to
$89,904 for the six months ended June 30, 1997, an increase of $1,103, or 1.23%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $77,602 for the year ended
December 31, 1997, compared to $91,366 for the year ended December 31, 1996. The
decrease in net income of $13,764, or 15.06% was primarily the result of a
decrease in rental revenue. These factors are discussed in more detail in the
following paragraphs.
S-75
<PAGE> 2203
Revenues
Rental and other property revenues from the partnership's property totaled
$704,178 for the year ended December 31, 1997, compared to $734,931 for the year
ended December 31, 1996, a decrease of $30,753, or 4.18%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $324,653 for the
year ended December 31, 1997, compared to $347,015 for the year ended December
31, 1996, a decrease of $22,362 or 6.44%. This decrease was primarily due to a
reduction in major landscaping. Management expenses totaled $35,112 for the year
ended December 31, 1997, compared to $35,967 for the year ended December 31,
1996, a decrease of $855, or 2.38%.
General and Administrative Expenses
General and administrative expenses totaled $28,080 for the year ended
December 31, 1997 compared to $27,925 for the year ended December 31, 1996, an
increase of $155 or .56%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $188,029 for the year ended December 31, 1997, compared to
$192,115 for the year ended December 31, 1996, a decrease of $4,086, or 2.13%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $91,366 for the year ended
December 31, 1996, compared to $70,024 for the year ended December 31, 1995. The
increase in net income of $21,342, or 30.48% was primarily the result of an
increase in rental revenue. These factors are discussed in more detail in the
following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$734,931 for the year ended December 31, 1996, compared to $708,849 for the year
ended December 31, 1995, an increase of $26,082, or 3.68%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $347,015 for the
year ended December 31, 1996, compared to $338,974 for the year ended December
31, 1995, an increase of $8,041 or 2.37%. Management expenses totaled $35,967
for the year ended December 31, 1996, compared to $34,897 for the year ended
December 31, 1995, an increase of $1,070, or 3.07%.
General and Administrative Expenses
General and administrative expenses totaled $27,925 for the year ended
December 31, 1996 compared to $40,473 for the year ended December 31, 1995, a
decrease of $12,548 or 31.00%. The decrease is primarily due to a reduction in
general partner reimbursements and professional fees.
S-76
<PAGE> 2204
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $192,115 for the year ended December 31, 1996, compared to
$184,269 for the year ended December 31, 1995, an increase of $7,846, or 4.26%.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $179,926 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partners of your partnership are
not liable to your partnership or any limited partner for any acts performed by
any of them or any failure to act in the absence of gross negligence or willful
malfeasance. As a result, unitholders might have a more limited right of action
in certain circumstances than they would have in the absence of such a provision
in your partnership's agreement of limited partnership. The general partner of
your partnership is owned by AIMCO. See "Conflicts of Interest."
Your partnership's agreement of limited partnership does not provide for
the indemnification of the general partners or their affiliates for any acts or
omissions performed by them on behalf of your partnership. As part of its
assumption of liabilities in the consolidation, AIMCO will indemnify the general
partner of your partnership and their affiliates for periods prior to and
following the consolidation to the extent of the indemnity under the terms of
your partnership's agreement of limited partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table sets forth the distributions paid per unit in the
periods indicated below.
<TABLE>
<CAPTION>
YEAR DISTRIBUTIONS
- ---- -------------
<S> <C>
1994........................................................ $ 78.00
1995........................................................ 0.00
1996........................................................ 87.45
1997........................................................ 0.00
1998 (through June 30)...................................... 246.13
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale
S-77
<PAGE> 2205
transactions (excluding transactions believed to be between related parties,
family members or the same beneficial owner).
<TABLE>
<CAPTION>
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF
YEAR TRANSFERRED OUTSTANDING TRANSACTIONS
- ---- --------------- ------------------------- ------------
<S> <C> <C> <C>
1994......................... 0 0 0
1995......................... 0 0 0
1996......................... 0 0 0
1997......................... 0 0 0
1998 (through June 30)....... 0 0 0
</TABLE>
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership received total compensation (which
includes all monies paid to the general partner by your partnership including
reimbursement for expenses) in respect of its capacity as general partner of
your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ 18,388
1995........................................................ 25,337
1996........................................................ 21,026
1997........................................................ 21,565
1998 (through June 30)......................................
</TABLE>
In addition, an affiliate of AIMCO manages the property of your
partnership. Your partnership has historically paid the property management fees
as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... 34,897
1996........................................... 35,967
1997........................................... 35,112
1998 (through June 30)......................... 16,115
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the compensation paid to the property
manager or AIMCO and its affiliates.
S-78
<PAGE> 2206
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Landmark Associates, Ltd. at December 31, 1997,
1996, and 1995 and for the years then ended, appearing in this Prospectus
Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
S-79
<PAGE> 2207
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statements of Operations for the six months ended
June 30, 1998 and 1997 (unaudited)........................ F-3
Condensed Statement of Cash flow............................ F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-7
Balance Sheets as of December 31, 1997 and 1996............. F-8
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1997 and 1996............ F-9
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-10
Notes to the Financial Statements........................... F-11
Independent Auditors' Report................................ F-15
Balance Sheets as of December 31, 1996 and 1995............. F-16
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1996 and 1995............ F-17
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-18
Notes to the Financial Statements........................... F-19
</TABLE>
F-1
<PAGE> 2208
LANDMARK ASSOCIATES, LIMITED
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30 ,1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 179,926
Receivables and Deposits.................................... 116,627
Restricted Escrows.......................................... 109,495
Other Assets................................................ 79,326
Investment Property:
Land...................................................... 148,692
Building and related personal property.................... 2,747,587
------------
2,896,279
Less: Accumulated depreciation............................ (2,115,020) 781,259
------------ -----------
Total Assets...................................... $ 1,266,633
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ --
Other Accrued Liabilities................................... 22,752
Property taxes payable...................................... 11,166
Tenant security deposits.................................... 11,075
Notes Payable............................................... 2,488,273
Partners' Capital........................................... (1,266,633)
-----------
Total Liabilities and Partners' Capital........... $ 1,266,633
===========
</TABLE>
F-2
<PAGE> 2209
LANDMARK ASSOCIATES, LIMITED
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $282,279 $324,467
Other Income.............................................. 32,495 49,878
(Gain) Loss on Disposition of Property.................... -- --
Casualty Gain/Loss........................................ -- --
-------- --------
Total Revenues.................................... 314,774 374,345
Expenses:
Operating Expenses........................................ 141,101 142,210
General and Administrative Expenses....................... 13,404 18,153
Depreciation Expense...................................... 27,601 27,601
Interest Expense.......................................... 91,007 89,904
Property Tax Expense...................................... 11,166 11,148
-------- --------
Total Expenses.................................... 284,279 289,016
-------- --------
Net Income........................................ $ 30,495 $ 85,329
======== ========
</TABLE>
F-3
<PAGE> 2210
LANDMARK ASSOCIATES, LIMITED
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 77,602 $ 91,366
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 55,201 55,018
Amortization of loan costs and deferred charges........ 9,900 10,807
Extraordinary loss on early extinguishment of debt..... 8,954 --
Change in accounts:
Receivables and deposits............................. (666) (46,173)
Other assets......................................... (2,830) (1,020)
Accounts payable..................................... 3,765 (10,052)
Tenant security deposit liabilities.................. (2,891) 3,800
Other liabilities.................................... (20,292) 11,612
----------- ---------
Net cash provided by operating activities......... 128,743 115,358
----------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (28,410) (46,343)
Deposits to restricted escrow............................. (100,000) --
----------- ---------
Net cash used in investing activities............. (128,410) (46,343)
----------- ---------
Cash flows from financing activities:
Proceeds from mortgage note payable....................... 2,500,000 --
Payment of loan costs..................................... (71,389) --
Payment on mortgage note payable.......................... (32,421) (32,906)
Payoff of debt............................................ (2,092,449) --
Distributions to partners................................. -- (99,993)
----------- ---------
Net cash provided by (used in) financing
activities...................................... 303,741 (132,899)
----------- ---------
Net increase (decrease) in cash............................. 304,074 (63,884)
Cash and cash equivalents at beginning of year.............. 200,292 264,176
----------- ---------
Cash and cash equivalents at end of year.................... $ 504,366 $ 200,292
=========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 178,116 $ 179,166
=========== =========
</TABLE>
See Accompanying Notes to Financial Statements
F-4
<PAGE> 2211
LANDMARK ASSOCIATES, LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Landmark Associates,
Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and all such
adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 2212
LANDMARK ASSOCIATES, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-6
<PAGE> 2213
INDEPENDENT AUDITORS' REPORT
General Partners
Landmark Associates, Limited:
We have audited the accompanying balance sheets of Landmark Associates,
Limited as of December 31, 1997 and 1996, and the related statements of
operations and changes in partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Landmark Associates, Limited
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
March 5, 1998
F-7
<PAGE> 2214
LANDMARK ASSOCIATES, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 504,366 $ 200,292
Receivables and deposits.................................... 102,714 102,048
Restricted escrow (Note B).................................. 100,000 --
Other assets................................................ 75,329 19,964
Investment properties (Note C):
Land...................................................... 145,000 145,000
Buildings and related personal property................... 2,719,107 2,690,697
----------- -----------
2,864,107 2,835,697
Less accumulated depreciation............................. (2,087,419) (2,032,218)
----------- -----------
776,688 803,479
----------- -----------
$ 1,559,097 $ 1,125,783
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 12,455 $ 8,690
Tenant security deposit liabilities....................... 15,475 18,366
Other liabilities......................................... 28,295 48,587
Mortgage note payable (Note C)............................ 2,500,000 2,124,870
Partners' deficit........................................... (997,128) (1,074,730)
----------- -----------
$ 1,559,097 $ 1,125,783
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-8
<PAGE> 2215
LANDMARK ASSOCIATES, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 611,308 $ 623,834
Other income.............................................. 92,870 111,097
----------- -----------
Total revenues......................................... 704,178 734,931
----------- -----------
Expenses:
Operating (Note D)........................................ 324,653 347,015
General and administrative (Note D)....................... 28,080 27,925
Depreciation.............................................. 55,201 55,018
Interest.................................................. 188,029 192,115
Property taxes............................................ 21,659 21,492
----------- -----------
Total expenses......................................... 617,622 643,565
----------- -----------
Net income before extraordinary loss........................ 86,556 91,366
Extraordinary loss on early extinguishment of debt.......... (8,954) --
----------- -----------
Net income............................................. 77,602 91,366
Distributions to partners................................... -- (99,993)
Partners' deficit at beginning of year...................... (1,074,730) (1,066,103)
----------- -----------
Partners' deficit at end of year............................ $ (997,128) $(1,074,730)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-9
<PAGE> 2216
LANDMARK ASSOCIATES, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 77,602 $ 91,366
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 55,201 55,018
Amortization of loan costs and deferred charges........ 9,900 10,807
Extraordinary loss on early extinguishment of debt..... 8,954 --
Change in accounts:
Receivables and deposits............................. (666) (46,173)
Other assets......................................... (2,830) (1,020)
Accounts payable..................................... 3,765 (10,052)
Tenant security deposit liabilities.................. (2,891) 3,800
Other liabilities.................................... (20,292) 11,612
----------- ---------
Net cash provided by operating activities......... 128,743 115,358
----------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (28,410) (46,343)
Deposits to restricted escrow............................. (100,000) --
----------- ---------
Net cash used in investing activities............. (128,410) (46,343)
----------- ---------
Cash flows from financing activities:
Proceeds from mortgage note payable....................... 2,500,000 --
Payment of loan costs..................................... (71,389) --
Payment on mortgage note payable.......................... (32,421) (32,906)
Payoff of debt............................................ (2,092,449) --
Distributions to partners................................. -- (99,993)
----------- ---------
Net cash provided by (used in) financing
activities...................................... 303,741 (132,899)
----------- ---------
Net increase (decrease) in cash............................. 304,074 (63,884)
Cash and cash equivalents at beginning of year.............. 200,292 264,176
----------- ---------
Cash and cash equivalents at end of year.................... $ 504,366 $ 200,292
=========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 178,116 $ 179,166
=========== =========
</TABLE>
See Accompanying Notes to Financial Statements
F-10
<PAGE> 2217
LANDMARK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Landmark Associates, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Tennessee pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated July 30,
1982. The Partnership owns and operates a 104 unit apartment complex, Landmark
Woods Apartments, in Florence, South Carolina.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is
managed by Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 25 years and the personal property
assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1997 and 1996 include deferred loan costs of
$71,389 and $18,855, respectively, which are amortized over the term of the
related borrowing. They are shown net of accumulated amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
F-11
<PAGE> 2218
LANDMARK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Reserve Escrow -- Established with a portion of the proceeds
of the loan. The funds are to be used for certain repair
work...................................................... $100,000 $ --
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTE PAYABLE
In November 1997, the Partnership refinanced its first mortgage note with
an outstanding balance of $2,104,201. The new mortgage note in the amount of
$2,500,000 is payable in monthly installments of $17,122, at 7.29% with the
remaining balance due December 2004; collateralized by land and buildings. A
loss on refinancing of $8,954 was realized 1997, as a result of the write-off of
unamortized loan costs associated with the original note. Loan costs of $71,389
related to the refinanced note were capitalized.
Between the date of November 1, 2000 and June 1, 2004, upon giving 30 days
prior written notice, the principal balance may be prepaid in whole but not in
part by paying a prepayment premium in an amount equal to the greater of (1) 1%
of the principal amount being prepaid or (2) the present value of a series of
payments each equal to the payment differential (the interest rate (7.29%) less
the reinvestment yield (the lesser of the yield on the U.S. Treasury issue with
a maturity date closest to the maturity date or the yield on the U.S. Treasury
issue with a term equal to the remaining average life of the debt with each
yield being based on the bid price for such issue as published in the Wall
Street Journal on the date that is 14 days prior to the prepayment date divided
by 12 and multiplied by the principal sum outstanding on the prepayment date))
and payable on each monthly payment date over the remaining original term of
this note and the maturity date discounted at the reinvestment yield for the
number of months remaining from the prepayment date to each such monthly payment
date and the maturity date.
Scheduled principal payments of the mortgage note during the years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 24,009
1999..................................................... 25,819
2000..................................................... 27,765
2001..................................................... 29,859
2002..................................................... 32,109
Thereafter............................................... 2,360,439
----------
$2,500,000
==========
</TABLE>
F-12
<PAGE> 2219
LANDMARK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1997 1996
TYPE OF TRANSACTION AMOUNT AMOUNT
- ------------------- ------- -------
<S> <C> <C>
Management fee........................................... $35,112 $35,967
Partnership administration fee........................... $ 6,884 $ 7,193
Reimbursement for services of affiliates................. $14,006 $13,833
Construction oversight costs............................. $ 675 $ --
</TABLE>
F-13
<PAGE> 2220
LANDMARK ASSOCIATES, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-14
<PAGE> 2221
INDEPENDENT AUDITORS' REPORT
General Partners
Landmark Associates, Limited:
We have audited the accompanying balance sheets of Landmark Associates,
Limited as of December 31, 1996 and 1995, and the related statements of
operations and changes in partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Landmark Associates, Limited
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
March 5, 1997
F-15
<PAGE> 2222
LANDMARK ASSOCIATES, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 200,292 $ 264,176
Restricted -- tenant security deposits.................... 17,978 13,978
Accounts receivable......................................... 2,270 1,793
Escrow for taxes and insurance.............................. 81,800 40,104
Other assets................................................ 19,964 29,751
Investment properties (Note B):
Land...................................................... 145,000 145,000
Buildings and related personal property................... 2,690,697 2,644,354
----------- -----------
2,835,697 2,789,354
Less accumulated depreciation............................. (2,032,218) (1,977,200)
----------- -----------
803,479 812,154
----------- -----------
$ 1,125,783 $ 1,161,956
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 8,690 $ 18,742
Tenant security deposits.................................. 18,366 14,566
Other liabilities......................................... 48,587 36,975
Mortgage note payable (Note B)............................ 2,124,870 2,157,776
Partners' deficit........................................... (1,074,730) (1,066,103)
----------- -----------
$ 1,125,783 $ 1,161,956
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-16
<PAGE> 2223
LANDMARK ASSOCIATES, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 623,834 $ 633,965
Other income.............................................. 111,097 74,884
----------- -----------
Total revenues......................................... 734,931 708,849
----------- -----------
Expenses:
Operating (Note C)........................................ 276,556 272,174
General and administrative (Note C)....................... 27,925 40,473
Maintenance............................................... 70,459 66,800
Depreciation.............................................. 55,018 50,386
Interest.................................................. 192,115 184,269
Property taxes............................................ 21,492 24,723
----------- -----------
Total expenses......................................... 643,565 638,825
----------- -----------
Net income.................................................. 91,366 70,024
Distributions to partners................................... (99,993) --
Partners' deficit at beginning of year...................... (1,066,103) (1,136,127)
----------- -----------
Partners' deficit at end of year............................ $(1,074,730) $(1,066,103)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-17
<PAGE> 2224
LANDMARK ASSOCIATES, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 91,366 $ 70,024
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 55,018 50,386
Amortization of loan costs and deferred charges........ 10,807 10,808
Change in accounts:
Restricted cash...................................... (4,000) 507
Accounts receivable.................................. (477) (1,566)
Escrow for taxes and insurance....................... (41,696) (40,004)
Other assets......................................... (1,020) --
Accounts payable..................................... (10,052) 11,162
Tenant security deposit liabilities.................. 3,800 (97)
Other liabilities.................................... 11,612 8,498
--------- --------
Net cash provided by operating activities......... 115,358 109,718
--------- --------
Cash flows from investing activities:
Property improvements and replacements.................... (46,343) (28,330)
--------- --------
Net cash used in investing activities............. (46,343) (28,330)
--------- --------
Cash flows from financing activities:
Payments on mortgage note payable......................... (32,906) (32,066)
Distributions to partners................................. (99,993) --
--------- --------
Net cash used in financing activities............. (132,899) (32,066)
--------- --------
Net increase (decrease) in cash............................. (63,884) 49,322
Cash and cash equivalents at beginning of year.............. 264,176 214,854
--------- --------
Cash and cash equivalents, at end of year................... $ 200,292 $264,176
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 179,166 $171,192
========= ========
</TABLE>
See Accompanying Notes to Financial Statements
F-18
<PAGE> 2225
LANDMARK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Landmark Associates, Limited (the "Partnership") was organized as a limited
partnership under the laws of the State of Tennessee pursuant to a Limited
Partnership Agreement and Certificate of Limited Partnership dated July 30,
1982. The Partnership owns and operates a 104 unit apartment complex, Landmark
Woods Apartments, in Florence, South Carolina.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is
managed by Insignia Management Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 25 years and the personal property
assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1996 and 1995 include deferred loan costs
which are amortized over the term of the related borrowing. They are shown net
of accumulated amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of legal counsel's opinion, the general partners believe that
the Partnership will be classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the financial
statements of the Partnership. Taxable income or loss and cash distributions of
the Partnership are allocated in accordance with the partnership agreement and
the Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation. These reclassifications had no impact on net income or partners'
deficit as previously reported.
F-19
<PAGE> 2226
LANDMARK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- MORTGAGE NOTE PAYABLE
The mortgage note payable consists of a first mortgage note, due in October
1998, payable in varying monthly installments based on the interest rate; the
current monthly payment is $17,958. The interest rate is adjusted every six
months based on the average six month Treasury bill rate for the six months
preceding the adjustment date plus three percent; the rate was 8.57% at December
31, 1996. The rate cannot change more than 1% from the prior period and has a
lifetime floor and ceiling of 3.125% and 13.125%, respectively. The note is
collateralized by the land and buildings and may be prepaid at any time without
a prepayment penalty.
Scheduled principal payments of the mortgage note during the years
subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 35,918
1998..................................................... 2,088,952
----------
$2,124,870
==========
</TABLE>
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1996 1995
TYPE OF TRANSACTION AMOUNT AMOUNT
- ------------------- ------- -------
<S> <C> <C>
Management fee........................................... $35,967 $34,897
Partnership administration fee........................... $ 7,193 $ 6,979
Reimbursement for services of affiliates................. $13,833 $19,358
</TABLE>
F-20
<PAGE> 2227
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 2228
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 2229
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 2230
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 2231
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-16
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Minneapolis
Associates II Limited Partnership.......... S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-29
Background of the Offer...................... S-29
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
THE OFFER...................................... S-33
Terms of the Offer; Expiration Date.......... S-33
Acceptance for Payment and Payment for
Units...................................... S-33
Procedure for Tendering Units................ S-34
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-37
Proration.................................... S-38
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-39
Dissenters' Rights........................... S-39
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-42
Accounting Treatment......................... S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-43
General...................................... S-43
Ranking...................................... S-43
Distributions................................ S-43
Allocation................................... S-44
Liquidation Preference....................... S-44
Redemption................................... S-45
Voting Rights................................ S-45
Restrictions on Transfer..................... S-45
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-48
CERTAIN FEDERAL INCOME TAX MATTERS............. S-51
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-51
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-51
Tax Consequences of Exchanging Units Solely
for Cash................................... S-52
Adjusted Tax Basis........................... S-52
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-53
Passive Activity Losses...................... S-53
Foreign Offerees............................. S-54
Certain Tax Consequences to Non-Tendering and
Partially-Tendering Unitholders............ S-54
VALUATION OF UNITS............................. S-55
FAIRNESS OF THE OFFER.......................... S-56
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-56
Fairness to Unitholders who Tender their
Units...................................... S-57
Fairness to Unitholders who do not Tender
their Units................................ S-58
Comparison of Consideration to Alternative
Consideration.............................. S-58
Allocation of Consideration.................. S-59
STANGER ANALYSIS............................... S-59
Experience of Stanger........................ S-60
Summary of Materials Considered.............. S-60
Summary of Reviews........................... S-61
Conclusions.................................. S-61
Assumptions, Limitations and
Qualifications............................. S-61
Compensation and Material Relationships...... S-62
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-63
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68
CONFLICTS OF INTEREST.......................... S-72
Conflicts of Interest with Respect to the
Offer...................................... S-72
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-72
Competition Among Properties................. S-72
Features Discouraging Potential Takeovers.... S-72
Future Exchange Offers....................... S-72
</TABLE>
i
<PAGE> 2232
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUR PARTNERSHIP............................... S-73
General...................................... S-73
Your Partnership and its Property............ S-73
Property Management.......................... S-73
Investment Objectives and Policies; Sale or
Financing of Investments................... S-73
Capital Replacement.......................... S-73
Borrowing Policies........................... S-74
Competition.................................. S-74
Legal Proceedings............................ S-74
Selected Financial Information............... S-75
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-76
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-78
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-78
Beneficial Ownership of Interests in Your
Partnership................................ S-78
Compensation Paid to the General Partner and
its Affiliates............................. S-79
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-79
LEGAL MATTERS.................................. S-79
EXPERTS........................................ S-79
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 2233
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Minneapolis Associates II Limited Partnership. For each unit that you
tender, you may choose to receive of our Tax-Deferral %
Partnership Preferred Units (also referred to as "Preferred OP Units"),
of our Tax-Deferral Partnership Common Units (also referred
to as "Common OP Units"), or $ in cash (subject, in each case to
adjustment for any distributions paid to you during the offer period). If
you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partnership") and the company that manages the property owned by
your partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 2234
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 2235
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future. Your partnership has not paid any
distributions on your units since the inception of your partnership.
- Growth Potential. Our assets organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $0 per unit for the six months ended
June 30, 1998. We will pay fixed quarterly distributions of
$ per unit on the Tax-Deferral % Preferred OP Units before
any distributions are paid to holders of Tax-Deferral Common OP Units. We
pay quarterly distributions on the Tax-Deferral Common OP Units based on
our funds from operations for that quarter. For the six months ended June
30, 1998, we paid distributions of $1.125 on each of the Tax-Deferral
Common OP Units (equivalent to $2.25 on an annual basis).
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
S-3
<PAGE> 2236
THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF
YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of
units without the consent of the general partner. Such consent may be
withheld by the general partner in its sole discretion. The general partner
may withhold its consent if such transfer would result in the termination
of your partnership for tax purposes which will occur if 50% or more of the
total interests in your partnership are transferred within a 12-month
period. If we acquire a significant percentage of the interest in your
partnership, the general partner may not consent to a transfer for a
12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership. In addition, if there is a sale or exchange of 50% or more of
the total interest in capital and profits of your partnership within any
12-month period, including sales or exchanges resulting from the offer,
your partnership will terminate for Federal income tax purposes. Any such
termination may, among other things, subject the assets of your partnership
to longer depreciable lives than those currently applicable to the assets
of your partnership. This would generally decrease the annual average
depreciation deductions allocable to you if you do not tender all of your
units (thereby increasing the taxable income allocable to your units each
year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF
YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX
SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
OFFER.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to
S-4
<PAGE> 2237
your partnership's annual net operating income. We determined an
appropriate capitalization rate using our best judgment, but our valuation
is just an estimate. Although the direct capitalization method is a
widely-accepted way of valuing real estate, there are a number of other
methods available to value real estate, each of which may result in
different valuations of the property. The proceeds that you would receive
if you sold your units to someone else or if your partnership were actually
liquidated might be higher or lower than our offer consideration. An actual
liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the
S-5
<PAGE> 2238
expiration of the offer, and you must follow the instructions provided with
the Letter of Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
S-6
<PAGE> 2239
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-26 of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
S-7
<PAGE> 2240
a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us. Although your
partnership did not make any distributions in 1998, it might make distributions
in the future.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences to you of the exchange will depend upon a number of
factors related to your individual tax situation, including your tax basis in
your units, whether you dispose of all of your units in your partnership, and
whether the "passive loss" rules apply to your investments. Because the income
tax consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
S-8
<PAGE> 2241
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if 50% or more of the total interests in your
partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
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DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
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WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain
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pension trusts, registered investment companies and Mr. Considine). Our charter
also prohibits anyone from buying shares if the purchase would result in us
losing our REIT status. If you or anyone else acquires shares in excess of the
ownership limit or in violation of the ownership requirements of the Internal
Revenue Code for REITs, the transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the
limited partners holding at least a majority of the units of your
partnership. In the absence of such consent, your only option for
liquidation of your investment would be to sell your units in a private
transaction. Any such sale could be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property
and might involve significant expense and delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
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distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner expects to
result from the offer. For example, a partner of your partnership would
have no opportunity for liquidity unless he were to sell his units in a
private transaction. Any such sale would likely be at a very substantial
discount from the partner's pro rata share of the fair market value of your
partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units. Your partnership has not paid any distributions on your units
since the inception of your partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Your partnership has not paid
any distributions on your units since the inception of your partnership.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have
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the opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to % of the outstanding units
of your partnership for consideration per unit of Tax-Deferral %
Preferred OP Units, Tax-Deferral Common OP Units, or $ in cash. If
you tender units pursuant to the offer, you may chose to receive any combination
of such forms of consideration for your units. The offer is made upon the terms
and subject to the conditions set forth in this Prospectus Supplement, the
accompanying Prospectus and the accompanying Letter of Transmittal, including
the instructions thereto, as the same may be supplemented or amended from time
to time (the "Letter of Transmittal"). To be eligible to receive Tax-Deferral
% Preferred OP Units, Tax-Deferral Common OP Units or cash pursuant to the
offer, you must validly tender and not withdraw your units on or prior to the
Expiration Date. For administrative purposes, the transfer of units tendered
pursuant to the offer will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds % of the outstanding units, upon the terms
and subject to the conditions of the offer, we will accept units in the
following order of priority: (1) first, all units properly tendered and not
withdrawn prior to the expiration date by any person holding one or fewer units
who tenders all of his or her units; and (2) second, all other units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis,
with adjustments to avoid resulting ownership of less than one unit by any
person. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Tax-Deferral Common OP Units
or Tax-Deferral % Preferred OP Units, if necessary.
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Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner and the property manager of your
partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner, aware of any licenses or
regulatory permits that would be material to the business of your partnership,
and that might be adversely affected by our acquisition of units as contemplated
herein. On the same basis, we are not aware of any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to our
acquisition of units pursuant to the offer as contemplated herein that have not
been made or obtained. We are not aware of any jurisdiction in which the making
of the offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the legal fees and expenses in connection therewith.
We will also pay the fees of Stanger for providing the fairness opinions for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $ .
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
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CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Tax-Deferral
% Preferred OP Units or Tax-Deferral Common OP Units. You will recognize a
gain or loss for Federal income tax purposes on units you sell for cash. The
exchange of your units for cash and OP Units will be treated, for Federal income
tax purposes, as a partial sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the proceeds that you
would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely-
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate......................................... %
Gross valuation of your partnership's property.............. $
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................ $
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures and deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
NET VALUATION OF YOUR PARTNERSHIP...........................
Percentage of liquidation proceeds allocated to holders of
units.....................................................
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
===========
</TABLE>
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In order to determine the number of Tax-Deferral % Preferred OP Units
we are offering for each of your units, we divided the cash offer consideration
by the $100 liquidation preference of each Preferred OP Unit to get per
unit.
In order to determine the number of Tax-Deferral Common OP Units we are
offering for each of your units, we divided the cash offer consideration by
$ to get per unit. This price represents the closing price of AIMCO's
Class A Common Stock on the NYSE on a recent date before we commenced this
offer.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We own your general partner. As a result, your
general partner has a conflict of interest and makes no recommendation to you as
to whether you should tender or refrain from tendering your units. We have
retained Stanger to conduct an analysis of the offer and to render an opinion as
to the fairness to you of our offer consideration. Stanger is not affiliated
with us or your general partner. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. You should make your decision whether to tender based upon a number of
factors, including your financial needs, other financial opportunities available
to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner considered numerous factors. In evaluating these factors, your
general partner did not quantify or otherwise attach particular weight to any of
them.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner has compared our cash offer consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Consideration.................................... $
Alternatives:
Prices on Secondary Market................................ Not Available
Estimated Liquidation Proceeds............................ $
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A-1 and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the
S-17
<PAGE> 2250
fairness opinion. Based on its analysis, and subject to the assumptions,
limitations and qualifications cited in its opinion, Stanger concluded that our
offer consideration is fair to you from a financial point of view.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, the general
partner of your partnership may be removed by the limited partners while the
limited partners of the AIMCO Operating Partnership cannot remove the general
partner. Also, your partnership is limited as to the aggregate capital
contributions that can be made by limited partners which is not the case with
the AIMCO Operating Partnership.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units,
Tax-Deferral % Preferred OP Units and Tax-Deferral Common OP Units relating
to, among other things, the nature of the investment, voting rights,
distributions and liquidity and transferability/redemption. For example, unlike
the AIMCO OP Units, you have no redemption rights with respect to your units.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
in its capacity as general partner of your partnership but may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $155,150 in 1996, $160,843 in 1997 and $90,029 for
the first six months of 1998. We have no current intention of changing the fee
structure for your property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
S-18
<PAGE> 2251
YOUR PARTNERSHIP
Your Partnership and its Property. Minneapolis Associates II Limited
Partnership is a Massachusetts limited partnership which was formed on May 12,
1983 for the purpose of owning and operating, through a 45% interest in
Burnsville Apartment Limited Partnership, a single apartment property located in
Burnsville, Minnesota, known as "The Woods of Burnsville." In 1989, it completed
a private placement of units. The Woods at Burnsville consists of 400 apartment
units. Your partnership has no employees.
Property Management. Since November 1997, your partnership's property has
been managed by an entity which is now our affiliate. Pursuant to the management
agreement between the property manager and your partnership, the property
manager operates your partnership's property, establishes rental policies and
rates and directs marketing activities. The property manager also is responsible
for maintenance, the purchase of equipment and supplies, and the selection and
engagement of all vendors, suppliers and independent contractors. The property
manager is affiliated with us.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new equity and reinvest cash in new properties. Your
partnership will terminate on December 31, 2033, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership's property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of December 31, 1997, your partnership
had a first mortgage in the amount of $16,580,000, a second mortgage in the
amount of $550,000, and a third mortgage in the amount of $750,000, all due
August 1999, payable to Dreyfus. The first mortgage bears interest at 7.00%, and
the second and third mortgages do not bear interest. Your partnership's
agreement of limited partnership also allows your general partner to lend to
your partnership. The property also secures $275,892 owed to the general partner
due in August 1999.
Transfers. Your units are not listed on any national securities exchange or
quoted on the NASDAQ System, and there is no established public trading market
for the units. Secondary sales activity for the units has been limited and
sporadic. Your general partner monitors transfers of the units. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $ will be required to purchase all of
the units sought in our offer, if such units are tendered for cash. We will
obtain all such funds from cash from operations, equity issuances and short term
borrowings.
S-19
<PAGE> 2252
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
six months ended June 30, 1998 and 1997 is unaudited. The historical summary
financial data for AIMCO Properties, L.P. for the years ended December 31, 1997,
1996 and 1995, the period July 29, 1994 (the date of inception) through December
31, 1994, and for the AIMCO Properties, L.P. Predecessors for the period January
10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties, L.P.'s Registration Statement on Form 10, which is
incorporated by reference herein. All dollar values are in thousands, except per
unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation..................... (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses.... (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (294) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (161) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
3,893 2,507 2,038 1,707 2,002 1,020
Minority interests in service
company business............... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.................. 11,350 1,341 8,676 523 658 123
Interest expense................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (516) (565) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (4,681) (379) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 5,609 (86) 4,636 -- -- --
Amortization of goodwill......... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,526 -- 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 38,524 11,733 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 210 107 147 94 56 48
Total owned apartment units (end
of period)..................... 58,345 27,056 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 68,248 70,213 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 5,838 25,035 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
</TABLE>
S-20
<PAGE> 2253
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1994
ENDED JUNE 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
financing activities............. $ 107,063 $ 91,450 $ 668,549 $ 60,129 $ 30,145 $ 176,800
Funds from operations(e)........... 83,657 28,441 81,155 35,185 25,285 9,391
Weighted average number of Common
OP Units outstanding............. 51,478 21,590 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets....................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 238,639 94,777 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,290,719 357,066 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Cash flows provided by (used in)
financing activities............. $(1,032) $ 14,114
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS FOR THE YEAR ENDED PERIOD
ENDED JUNE 30, DECEMBER 31, JANUARY 10,
----------------- --------------------------- -----------
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property............................. (2,526) -- (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 4,727 474 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 1,263 3,584 -- -- --
Amortization of management contracts...................... 3,088 150 1,587 -- -- --
Deferred taxes............................................ 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 9,131 697 6,280 -- -- --
Preferred stock dividends................................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations....................................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
S-21
<PAGE> 2254
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the six months ended June 30, 1998 and
for the year ended December 31, 1997. The pro forma financial and operating
information gives effect to AIMCO's merger with Insignia Financial Group, Inc.,
the transfer of certain assets and liabilities of Insignia to unconsolidated
subsidiaries, a number of transactions completed before the Insignia merger and
the exchange offers.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
---------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $206,931 $ 402,202
Property operating expenses............................... (78,825) (169,166)
Owned property management expenses........................ (4,880) (10,412)
Depreciation.............................................. (45,728) (87,246)
-------- ---------
77,498 135,378
-------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 19,525 41,676
Management and other expenses............................. (9,660) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (6,634) (20,663)
-------- ---------
3,035 (3,258)
Minority interests in service company business............ (1) (10)
-------- ---------
Partnership's shares of income from service company
business............................................... 3,034 (3,268)
-------- ---------
General and administrative expenses....................... (4,678) (21,228)
Interest income........................................... 15,781 21,543
Interest expense.......................................... (61,812) (115,824)
Minority interest......................................... (6,103) (10,044)
Equity in losses of unconsolidated partnerships........... (11,743) (47,036)
Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344
Amortization of Goodwill.................................. (3,394) --
-------- ---------
Net income........................................ $ 10,579 $ (38,135)
======== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19)
Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 84,894 $ 130,011
Cash used by investing activities(b)........................ (8,942) (17,884)
Cash used by financing activities(c)........................ (93,515) (160,354)
OTHER DATA:
Funds from operations(d).................................... $121,674 $ 170,742
Weighted average number of Common OP Units outstanding...... 66,029 65,487
</TABLE>
S-22
<PAGE> 2255
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $2,669,776
Real estate, net of accumulated depreciation................ 2,371,881
Total assets................................................ 4,156,963
Total mortgages and notes payable........................... 1,745,775
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 302,941
Partners' capital........................................... 1,739,831
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'s equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments for changes in working capital resulting
from changes in current assets and current liabilities as there is no
historical data available as of both the beginning and end of each period
presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.125 per Common OP Unit for the six months ended
June 30, 1998 and $1.85 per Common OP Unit for the year ended December 31,
1997, on outstanding Common OP Units, (ii) estimated distributions to be
paid based on the rate of $3.5625 per unit for the six months ended June
30, 1998 and $7.125 per unit for the year ended December 31, 1997 on
outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.125 per unit for the six
months ended June 30, 1998 and $2.25 per unit for the year ended December
31, 1997 on outstanding Class C Partnership Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Partnership Preferred Units, (v) estimated
distributions to be paid based on the rate of $1.1718 per unit for the six
months ended June 30, 1998 and $2.34375 per unit for the year ended
December 31, 1997 on outstanding Class G Partnership Preferred Units, and
(vi) estimated distributions to be paid based on the rate of $1.1875 per
unit for the six months ended June 30, 1998 and $2.375 per unit for the
year ended December 31, 1997 on outstanding Class H Partnership Preferred
Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-23
<PAGE> 2256
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT JUNE 30, 1998 DECEMBER 31, 1997
------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)................................. $ 10,579 $(38,135)
HUD release fee and legal reserve................. -- 10,202
Real estate depreciation, net of minority
interests....................................... 43,391 81,936
Amortization of management contracts.............. 5,773 11,546
Amortization of management company goodwill....... 3,877 7,752
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation........................ -- 1,715
Amortization of management company goodwill..... 959 1,918
Amortization of management contracts............ 15,345 29,951
Deferred taxes.................................. 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation........................ 60,297 104,471
Interest on convertible debentures................ (5,012) (10,003)
Preferred unit distributions...................... (15,107) (30,214)
-------- --------
Funds from operations............................. $121,674 $170,742
======== ========
</TABLE>
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<PAGE> 2257
SUMMARY FINANCIAL INFORMATION OF MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP
The summary financial information of Minneapolis Associates II Limited
Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The
summary financial information for Minneapolis Associates II Limited Partnership
for the years ended December 31, 1997, 1996 and 1995, is based on audited
financial statements. This information should be read in conjunction with such
financial statements, including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Your
Partnership" included herein. See "Index to Financial Statements."
MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............... $ 1,823,591 $ 0 $ 3,479,972 $ 3,201,929 $ 3,049,589 $ 3,159,809 $ 3,103,528
Net Income/(Loss)............ (19,440) 0 (205,363) (347,840) (279,767) (545,202) (657,806)
BALANCE SHEET DATA:
Real Estate, Net of
Accumulated Depreciation... $11,227,012 #VALUE! $11,420,449 $11,702,590 $12,065,709 $12,448,938 $12,924,205
Total Assets................. 12,759,668 0 13,108,944 13,328,997 13,582,960 13,925,231 14,458,033
Mortgage Notes Payable,
including Accrued
Interest................... 18,266,878 0 18,266,876 18,266,872 8,266,868 18,266,867 18,266,867
Partners'
Capital/(Deficit).......... (6,539,080) 0 (6,216,145) (6,010,782) (5,662,942) (5,383,175) (4,837,973)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical and cash distributions per Common OP Unit
and historical cash distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP YOUR PARTNERSHIP
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Cash distributions per unit outstanding................... $1.125 $1.85 $0 $0
</TABLE>
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<PAGE> 2258
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 1, 1998, AIMCO was the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico. As of October 1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
The principal executive offices of AIMCO and the AIMCO Operating
Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222,
and their telephone number is (303) 757-8101.
RISK FACTORS
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
S-26
<PAGE> 2259
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights, title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. In addition, if the AIMCO Operating
Partnership were to be treated as a "publicly traded partnership" for Federal
income tax purposes, passive activity losses generated by other passive activity
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. See "Certain Federal Income Tax
Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code. The
particular tax consequences for you of our offer will depend upon a number of
factors related to your tax situation, including your tax basis in your units,
whether you dispose of all of your units in your partnership (and therefore are
no longer subject to the "passive" loss rules with respect to your partnership).
Because the income tax consequences of tendering units will not be the same for
everyone, you should consult your own tax advisor with specific reference to
your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages a single apartment property. In
contrast, the AIMCO Operating Partnership is in the business of acquiring,
S-27
<PAGE> 2260
marketing, managing and operating a large portfolio of apartment properties.
While diversification of assets may reduce certain risks of investment
attributable to a single property or entity, there can be no assurance as to the
value or performance of our securities or our portfolio of properties as
compared to the value of your units or your partnership. Proceeds of future
asset sales or refinancings by the AIMCO Operating Partnership generally will be
reinvested rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or Common OP Units may be
redeemed for shares of Class I Preferred Stock or Class A Common Stock.
Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common
Stock at the time at which OP Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Based on anticipated annualized distributions of
$ with respect to the Preferred OP Units, current annualized distributions
with respect to the Common OP Units of $2.25, and the 1998 distributions of $0
with respect to your units, distributions with respect to the Preferred OP Units
and Common OP Units that we are offering are expected to be , immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
the company that manages your partnership's property. In the event that we
acquire a substantial number of units pursuant to our offer, removal of the
property manager without our consent may become more difficult or impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your
S-28
<PAGE> 2261
partnership. Any such hypothetical distribution of cash would be treated as a
nontaxable return of capital to the extent of your adjusted tax basis in your
units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES.
If there is a sale or exchange of 50% or more of the total interest in capital
and profits of your partnership within any 12-month period, including sales or
exchanges resulting from the offer, your partnership will terminate for Federal
income tax purposes. Any such termination may, among other things, subject the
assets of your partnership to longer depreciable lives than those currently
applicable to the assets of your partnership. This would generally decrease the
annual average depreciation deductions allocable to you if you do not tender all
of your units (thereby increasing the taxable income allocable to your units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if 50% or more of the total interests in your
partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1,
1998, Moody's Investors Service revised its outlook for the ratings of AIMCO
from stable to negative to reflect its concerns surrounding AIMCO's ability to
successfully implement its financial strategy while maintaining a prudent
capital structure as a result of the more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs. Moody's assigned a "ba3" rating to the Class I Preferred Stock
proposed to be issued by AIMCO, and confirmed its previous ratings related to
AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration risks resulting from the merger
with Insignia. Moody's also noted AIMCO's high level of encumbered properties
and material investments in loans to highly leveraged partnerships in which
AIMCO owns a general partnership interest. At the same time, Moody's confirmed
its existing rating on AIMCO's existing preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired the general partner of your partnership and the manager of your
partnership's property.
We currently do not own any limited partnership interest in your
partnership.
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<PAGE> 2262
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
One of the reasons AIMCO acquired Insignia was that AIMCO expected to make
offers to acquire limited partnership interests of some of the limited
partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships. Such offers would also allow the AIMCO Operating
Partnership an opportunity to increase its ownership interest in certain
Insignia Partnerships which would provide a larger asset and capital base and
increased diversification.
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by the general partner of
your partnership.
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of the general partner of your partnership, the present time may
not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Finally, under your partnership's agreement of
limited partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of the limited
partners holding at least a majority of the units of your partnership. In the
absence of such consent, your only option for liquidation would be to sell your
units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages would result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for apartment properties could improve over time,
making a sale of the partnership's property in a private transaction at some
point in the future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to
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<PAGE> 2263
continue operating as presently structured, your partnership could be forced to
borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties. Also, there are currently no
distributions paid on your units while there are expected to be regular,
quarterly distributions on OP Units.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Preferred OP Units and receive, at our option, shares of
AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common Stock
or cash. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Tax-Deferral % Preferred OP Units rank equal to six other
outstanding classes of Partnership Preferred Units. Your Partnership has
not paid any distributions on your units since the inception of your
partnership.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Common OP Units and receive, at our option, shares of AIMCO's
Class A Common Stock (on a one-for-one basis, subject to adjustment in
certain circumstances) or an equivalent amount of cash. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended June 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future. Your Partnership
has not paid any distributions on your units since the inception of your
partnership.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
S-31
<PAGE> 2264
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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<PAGE> 2265
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to % of the outstanding units of your
partnership for consideration per unit of (i) Preferred OP Units, (ii)
Common OP Units, or (iii) $ in cash. If you tender units pursuant
to our offer, you may chose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), with appropriate adjustments to avoid purchases
that would violate the AIMCO Operating Partnership's agreement of limited
partnership and any relevant procedures or regulations promulgated by the AIMCO
Operating Partnership's general partner.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. The AIMCO Operating
Partnership reserves the right to accept for payment and pay for validly
tendered units prior to the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between and the
expiration of the offer. See "Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
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For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to Insignia Properties
Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business
trust which operates as a REIT in the same line of business as us. As a result
of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998,
AIMCO acquired approximately 51% of the outstanding common stock of IPT. On
October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder
approval, to merge IPT into AIMCO. IPLP is a Delaware limited partnership that
conducts substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies, in the manner set
forth in the Letter of Transmittal, each with full power of substitution, to the
fullest extent of your rights with respect to your units tendered and accepted
for payment by the AIMCO Operating Partnership. Each such proxy shall be
considered coupled with an interest in the tendered units. Such appointment will
be effective when, and only to the extent that, the AIMCO Operating Partnership
accepts the tendered units for payment. Upon such acceptance for payment, all
prior proxies given by you with respect to such units will, without further
action, be revoked, and no subsequent proxies may be given (and if given will
not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
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Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
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Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Denver, Colorado time.
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PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds % of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase units in the following order of priority:
(1) First, all units properly tendered and not withdrawn prior to the
expiration of the offer by any person holding one or fewer units who
tenders all of his or her units; and
(2) Second, all other units properly tendered and not withdrawn prior to
the expiration of the offer on a pro rata basis, with adjustments to avoid
resulting ownership of less than one unit by a tendering offeree.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is or less, the AIMCO
Operating Partnership will purchase such units so tendered and not withdrawn. If
the number of units in your partnership properly tendered and not withdrawn
prior to the expiration of any such renewal (together with any units previously
purchased in this offer) is greater than , the AIMCO Operating
Partnership will purchase units in the order of priority described in the
preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
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We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business. We have no present intention to cause your partnership to sell its
property or to prepay the current mortgage within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership, nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market in the United States, (ii) a
decline in the closing share price of AIMCO's Class A Common Stock of more
than 7.5% per share, from , 1998, (iii) any extraordinary or
material adverse change in the financial, real estate or money markets or
major equity security indices in the United States such that there shall
have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending
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institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the sole judgment of the AIMCO
Operating Partnership, a material acceleration or worsening thereof; or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as the
general partner of your partnership or to remove such entity as the general
partner of your partnership, or seeks to impose any material limitation on
the ability of the AIMCO Operating Partnership or any of its affiliates to
conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change
of, its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into any
such equity interests or any rights, warrants or options to acquire any
such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired, or
proposed or offered to purchase or otherwise acquire, any outstanding units
or other securities, (iv) declared or paid any dividend or distribution on
any units or issued, authorized, recommended or proposed the issuance of
any other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business combination,
any acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of business,
(vi) taken any action to implement such a transaction previously
authorized, recommended, proposed or publicly announced, (vii) issued, or
announced its intention to issue, any debt securities, or securities
convertible into, or rights, warrants or options to acquire, any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (viii) authorized, recommended or proposed, or entered into, any
transaction which, in the sole judgment of the AIMCO Operating Partnership,
has or could have an adverse affect on the value of your partnership or the
units, (ix) proposed, adopted or authorized any amendment of its
organizational documents, (x) agreed in writing or otherwise to take any of
the foregoing actions, or (xi) been notified
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that any debt of your partnership or any of its subsidiaries secured by any
of its or their assets is in default or has been accelerated; or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
the company that manages your partnership's property. In the event that the
AIMCO Operating Partnership acquires a substantial number of units pursuant to
the offer, removal of the property manager may become more difficult or
impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by the general partner of your
partnership, aware of any licenses or regulatory permits
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that would be material to the business of your partnership, taken as a
whole, and that might be adversely affected by the AIMCO Operating Partnership's
acquisition of units as contemplated herein, or any filings, approvals or other
actions by or with any domestic or foreign governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of units by the AIMCO Operating Partnership pursuant to the offer as
contemplated herein. While there is no present intent to delay the purchase of
units tendered pursuant to the offer pending receipt of any such additional
approval or the taking of any such action, there can be no assurance that any
such additional approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to your
partnership's business, or that certain parts of your partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the AIMCO
Operating Partnership to elect to terminate the offer without purchasing units
hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for
units is subject to certain conditions, including conditions related to the
legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $ .
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, and with any other interest in the AIMCO Operating Partnership if the
holders of such interest and the Preferred OP Units shall be entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other ("Parity Units"); and (iii) junior to the Class F
Partnership Preferred Units and any other interest in the AIMCO Operating
Partnership if the holders of such interest shall be entitled to the receipt of
distributions or amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Preferred OP Units ("Senior
Units"). Junior Units, Parity Units and Senior Units may be issued from time to
time by the AIMCO Operating Partnership without any approval or consent by
holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $ per Preferred
OP Unit (equivalent to % per annum of the $100 stated liquidation
preference); provided, however, that at any time and from time to time on or
after the fifth anniversary of the issue date of the Preferred OP Units, the
AIMCO Operating Partnership may adjust the annual distribution rate on the
Preferred OP Units to the lower of (i) % plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. Such adjustment shall become effective upon the date the AIMCO Operating
Partnership issues a notice to such effect to the holders of the Preferred OP
Units. Such distributions are cumulative from the date of original issue,
whether or not in any distribution period or periods such distributions have
been declared, and shall be payable quarterly on February 15, May 15, August 15
and November 15 of each year (or, if not a business day, the next succeeding
business day) (each a "Distribution Payment Date"), commencing on the first such
date occurring after the date of original issue. If the Preferred OP Units are
issued on any day other than a Distribution Payment Date, the first distribution
payable on such Preferred OP Units will be prorated for the portion of the
quarterly period that such Preferred OP Units are outstanding on the basis of
twelve 30-day months and a 360-day year. Distributions are payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any
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<PAGE> 2276
distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $100 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (whether or not earned or declared) to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. Until the holders of the Preferred OP Units have been paid the
Liquidation Preference in full, no allocation of income or gain will be made to
any holder of Junior Units upon the liquidation, dissolution or winding up of
the AIMCO Operating Partnership. If, upon any liquidation, dissolution or
winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating
Partnership, or proceeds thereof, distributable among the holders of Preferred
OP Units shall be insufficient to pay in full the above described preferential
amount and liquidating payments on any Parity Units, then following certain
allocations made by the AIMCO Operating Partnership, such assets, or the
proceeds thereof, shall be distributed among the holders of Preferred OP Units
and any such
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Parity Units ratably in the same proportion as the respective amounts that
would be payable on such Preferred OP Units and any such Parity Units if all
amounts payable thereon were paid in full. A voluntary or involuntary
liquidation, dissolution or winding up of the AIMCO Operating Partnership will
not include a consolidation or merger of the AIMCO Operating Partnership with
one or more partnerships, corporations or other entities, or a sale or transfer
of all or substantially all of the AIMCO Operating Partnership's assets. Upon
any liquidation, dissolution or winding up of the AIMCO Operating Partnership,
after all allocations shall have been made in full to the holders of Preferred
OP Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the New York Stock Exchange or another
national securities exchange, or (iii) a number of shares of Class A Common
Stock of AIMCO that is equal in Value to the Liquidation Preference of the
Preferred OP Units tendered for redemption. The "Value" of shares of Class A
Common Stock will be determined based on a 10-day average trading price of the
shares, as set forth in the AIMCO Operating Partnership's agreement of limited
partnership. If shares of Class I Preferred Stock or Class A Common Stock of
AIMCO are issued in exchange for any Preferred OP Units tendered for redemption,
the Preferred OP Units that are acquired by AIMCO will be converted to a class
of AIMCO Operating Partnership units that corresponds to the class of stock so
issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock and with any other class or
series of capital stock of AIMCO, if the holders of such class of stock or
series and the Class I Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class I Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series are entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class I Preferred
Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of % per annum of the $25 liquidation preference (equivalent to
$ per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO board of directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity interests The Class I Preferred Stock constitutes an equity
entitling each holder of Preferred OP Units to receive, interest entitling each holder of Class I Preferred
when and as declared by the board of directors of the Stock to receive, when and as declared by the AIMCO
general partner of the AIMCO Operating Partnership, board of directors, cash distribution at a rate of
quarterly cash distribution at a rate of $ per $ per annum per share.
Preferred OP Unit, subject to adjustments from time to
time on or after the fifth anniversary of the issue
date of the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable law or in Holders of Class I Preferred Stock do not have any
the AIMCO Operating Partnership's agreement of limited voting rights, except as set forth below and except as
partnership, the holders of the Preferred OP Units will otherwise required by applicable law.
have the same voting rights as holders of the Common OP
Units. See "Description of OP Units" in the If and whenever dividends on any shares of Class I
accompanying Prospectus. So long as any Preferred OP Preferred Stock or any series or class of Class I
Units are outstanding, in addition to any other vote or Parity Stock are in arrears for six or more quarterly
consent of partners required by law or by the AIMCO periods (whether or not consecutive), the number of
Operating Partnership's agreement of limited directors then constituting the AIMCO board of
partnership, the affirmative vote or consent of holders directors shall be increased by two (if not already
of at least 50% of the outstanding Preferred OP Units increased by reason of similar types of provisions with
will be necessary for effecting any amendment of any of respect to shares of voting preferred stock), and the
the provisions of the Partnership Unit Designation of holders of shares of Class I Preferred Stock, together
the Preferred OP Units that materially and adversely with the holders of shares of all other voting
affects the rights or preferences of the holders of the preferred stock then entitled to exercise similar
Preferred OP Units. The creation or issuance of any voting rights, voting as a single class regardless of
class or series of AIMCO Operating Partnership units, series, will be entitled to vote for the election of
including, without limitation, any AIMCO Operating two additional directors of AIMCO. Whenever dividends
Partnership units that may have rights senior or supe- in arrears and dividends for the current quarterly
rior to the Preferred OP Units, will not be deemed to dividend period have been paid or declared and set
materially adversely affect the rights or preferences aside in respect of the outstanding shares of the Class
of the holders of Preferred OP Units. With respect to I Preferred Stock and the voting preferred stock, then
the exercise of the above described voting rights, each the right of the holders of Class I Preferred Stock and
Preferred OP Units will have one (1) vote per Preferred the voting preferred stock to elect such additional two
OP Unit. directors will cease and the terms of office of such
directors will terminate.
The affirmative vote or consent of at least 66 2/3% of
the votes entitled to be cast by the holders of Class I
Preferred Stock and Class I Parity Stock entitled to
vote on such matters, voting as a single class, will be
required to (i) authorize, create, increase the
authorized amount of, or issue any shares of any class
of Class I Senior Stock or any security convertible
into shares of any class of Class I Senior Stock, or
(ii) amend, alter or repeal any provision of, or add
any provision to, the AIMCO charter or by-laws, if such
action would materially adversely affect the voting
powers, rights or preferences of the holders of the
Class I Preferred Stock; provided, however, that no
such vote of the Class I Preferred Stockholders shall
be required if, at or prior to the time such proposed
change, provisions are made for the redemption of all
outstanding shares of Class I Preferred Stock. The
amendment of the AIMCO charter to authorize, create,
increase or decrease the authorized amount of or to
issue Class I Junior Stock, Class I Preferred Stock or
any shares of any class of Class I Parity Stock shall
not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above described
voting rights, each share of Class I Preferred Stock
will have one vote per share, except that when any
other class or series of preferred stock has the right
to vote with the Class I Preferred Stock as a single
class, then the Class I Preferred Stock and such other
class or series shall have one quarter of one vote per
$25 of stated liquidation preference.
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled to receive, Holders of Class I Preferred Stock are entitled to
when and as declared by the board of directors of the receive, when and as declared by the AIMCO board of
general partner of the AIMCO Operating Partnership, directors, out of funds legally available for payment,
quarterly cash distributions at the rate of $ per cash dividends at the rate of $ per annum per
Preferred OP Unit; provided, however, that at any time share. Such dividends are cumulative from the date of
and from time to time on or after the fifth anniversary original issue. Holders of Class I Preferred Stock are
of the issue date of the Preferred OP Units, the AIMCO not be entitled to receive any dividends in excess of
Operating Partnership may adjust the annual distribu- cumulative dividends on the Class I Preferred Stock. No
tion rate on the Preferred OP Units to the lower of (i) interest, or sum of money in lieu of interest, shall be
% plus the annual interest rate then applicable to payable in respect of any dividend payment or payments
U.S. Treasury notes with a maturity of five years, and on the Class I Preferred Stock that may be in arrears.
(ii) the annual dividend rate on the most recently
issued AIMCO non-convertible preferred stock which When dividends are not paid in full upon the Class I
ranks on a parity with its Class H Cumulative Preferred Preferred Stock or any other class or series of Class I
Stock. Such distributions will be cumulative from the Parity Stock, all dividends declared upon the Class I
date of original issue. Holders of Preferred OP Units Preferred Stock and any shares of Class I Parity Stock
will not be entitled to receive any distributions in will be declared ratably in proportion to the
excess of cumulative distributions on the Preferred OP respective amounts of dividends accumulated, accrued
Units. No interest, or sum of money in lieu of and unpaid on the Class I Preferred Stock and such
interest, shall be payable in respect of any Class I Parity Stock. Unless dividends equal to the
distribution payment or payments on the Preferred OP full amount of all accumulated, accrued and unpaid
Units that may be in arrears. dividends on the Class I Preferred Stock have been
paid, or declared and set apart for payment, except in
When distributions are not paid in full upon the limited circumstances, no dividends may be declared or
Preferred OP Units or any Parity Units, all paid or set apart for payment by AIMCO and no other
distributions declared upon the Preferred OP Units and distribution of cash or other property may be declared
any Parity Units will be declared ratably in proportion or made, directly or indirectly, by AIMCO with respect
to the respective amounts of distributions accumu- to any shares of Class I Junior Stock, nor shall any
lated, accrued and unpaid on the Preferred OP Units and shares of Class I Junior Stock be redeemed, purchased
such Parity Units. Unless full cumulative distributions or otherwise acquired for any consideration, nor shall
on the Preferred OP Units have been declared and paid, any other cash or other property be paid or distributed
except in limited circumstances, no distributions may to or for the benefit of holders of shares of Class I
be declared or paid or set apart for payment by the Junior Stock. See "Description of Class I Preferred
AIMCO Operating Partnership and no other distribution Stock -- Dividends."
of cash or other property may be declared or made,
directly or indirectly, by the AIMCO Operating
Partnership with respect to any Junior Units, nor shall
any Junior Units be redeemed, purchased or otherwise
acquired for consideration, nor shall any other cash or
other property be paid or distributed to or for the
benefit of holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred OP Units Ownership of shares of Class I Preferred Stock by any
and the Preferred OP Units are not listed on any person will be limited such that the sum of the
securities exchange. The Preferred OP Units are subject aggregate value of all equity stock (including all
to certain restrictions on transferability set forth in shares of Class I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or
15% in the case of certain parties) of the aggregate
Pursuant to the AIMCO Operating Partnership's agreement value of all outstanding shares of equity stock.
of limited partnership, until the expiration of one Further, certain transfers which may have the effect of
year from the date on which a holder of Preferred OP causing AIMCO to lose its status as a REIT are void ab
Units acquired Preferred OP Units, subject to certain initio.
exceptions, such holder of Preferred OP Units may not
transfer all or any portion of its Preferred OP Units If any transfer of Class I Preferred Stock occurs
to any transferee without the consent of the general which, if effective, would result in any person
partner, which consent may be withheld in its sole and beneficially or constructively owning Class I Preferred
absolute discretion. After the expiration of one year, Stock in excess or in violation of the Class I
such holders of Preferred OP Units has the right to Preferred Ownership Limit, such shares of Class I
transfer all or any portion of its Preferred OP Units Preferred Stock in excess of the Class I Preferred
to any person, subject to the satisfaction of certain Ownership Limit will be automatically transferred to a
conditions specified in the AIMCO Operating Partner- trustee in his capacity as trustee of a trust for the
ship's agreement of limited partnership, including the exclusive benefit of one or more charitable
general partner's right of first refusal. beneficiaries designated by AIMCO, and the prohibited
transferee will generally have no rights in such
After a one-year holding period, a holder may redeem shares, except upon sale of the shares by the trustee.
Preferred OP Units and receive in exchange therefor, at The trustee will have all voting rights and rights to
the AIMCO Operating Partnership's option, (i) subject dividends with respect to shares of Class I Preferred
to the terms of any Senior Units, cash in an amount Stock held in the trust, which rights will be exercised
equal to the Liquidation Prefer- for the benefit of the charitable beneficiaries.
</TABLE>
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<PAGE> 2282
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
ence of the Preferred OP Units tendered for redemption, The trustee may sell the Class I Preferred Stock held
(ii) a number of shares of preferred stock of AIMCO in the trust to AIMCO or a person, designated by the
that have an aggregate dividend yield equivalent to the trustee, whose ownership of the Class I Preferred Stock
distribution yield of the Preferred OP Units tendered will not violate the Class I Preferred Ownership Limit.
for redemption and are part of a class or series of Upon such sale, the interest of the charitable
preferred stock that is then listed on the New York beneficiaries in the shares sold will terminate and the
Stock Exchange or another national securities exchange, trustee will distribute to the prohibited transferee,
or (iii) a number of shares of Class A Common Stock of the lesser of (i) the price paid by the prohibited
AIMCO that is equal in value to the Liquidation transferee for the shares or if the prohibited
Preference of the Preferred OP Units tendered for transferee did not give value for the shares in
redemption. The Preferred OP Units may not be redeemed connection with the event causing the shares to be held
at the option of the AIMCO Operating Partnership. See in the trust, the market price of such shares on the
"Description of Preferred OP Units -- Redemption." day of the event causing the shares to be held in the
trust and (ii) the price per share received by the
trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the
amount payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO may, at its
option, redeem shares of Class I Preferred Stock, in
whole or from time to time in part, at a cash
redemption price equal to 100% of the Class I
Liquidation Preference plus all accumulated, accrued
and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on all outstanding shares
of Class I Preferred Stock have not been paid or
declared and set apart for payment, no shares of Class
I Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred Stock are
simultaneously redeemed and neither AIMCO nor any of
its affiliates may purchase or acquire shares of Class
I Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders
of Class I Preferred Stock. The redemption price for
the Class I Preferred Stock (other than any portion
thereof consisting of accumulated, accrued and unpaid
dividends) will be payable solely with the proceeds
from the sale by AIMCO of capital stock of AIMCO or the
sale by the AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership (whether
or not such sale occurs concurrently with such
redemption).
</TABLE>
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<PAGE> 2283
CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership are classified and subject
to taxation for Federal income tax purposes as partnerships rather than as
associations taxable as corporations and will be operated in accordance with
their respective organizational documents and partnership agreements. This
summary is for general information only and does not purport to discuss all
aspects of Federal income taxation which may be important to a particular person
in light of its investment or tax circumstances, or to certain types of
investors subject to special tax rules (including financial institutions,
broker-dealers, insurance companies, and, except to the extent discussed below,
tax-exempt organizations and foreign investors, as determined for United States
Federal income tax purposes). This summary assumes that your units and any OP
Units that you receive in the offer constitute capital assets (generally,
property held for investment). No advance ruling has been or will be sought from
the IRS regarding any matter discussed in this Prospectus Supplement.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO Operating Partnership will be equal to a fraction, the numerator of
which will be the sum of the cash received by you pursuant to the offer plus the
amount of your partnership liabilities deemed transferred to you
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<PAGE> 2284
pursuant to the offer, and the denominator of which is the fair market value of
the aggregate consideration received by you pursuant to the offer (i.e., the sum
of the numerator of such fraction plus the fair market value of the OP Units
received by you pursuant to the offer). The transfer by you of the remaining
portion of such units will generally be treated as a tax-free contribution. At
the time of transfer, the adjusted tax basis of the transferred units is
allocated between the portion of the units deemed sold and the remaining portion
of the units deemed contributed on the basis of each such portion's respective
fair market value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of disposition. If your adjusted tax
basis is less than your share of your partnership's liabilities (e.g., as a
result of the effect of net loss allocations and/or distributions exceeding the
cost of your unit), your gain recognized
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<PAGE> 2285
pursuant to the offer will exceed the cash proceeds realized upon the sale of
such unit. The initial adjusted tax basis of the OP Units received by you in
exchange for your units pursuant to the offer will be equal to (i) the sum of
your adjusted tax basis in such transferred units plus any gain recognized in
the exchange and reduced by (ii) cash received or deemed received in the
exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. Although you will not receive a distribution with respect to any accreted
income, the offer consideration includes an amount that represents an estimate
by the AIMCO Operating Partnership of cash that may be available for
distribution under the terms of the AIMCO Operating Partnership's agreement of
limited partnership. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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<PAGE> 2286
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING UNITHOLDERS
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). It is possible that the AIMCO Operating Partnership's
acquisition of units pursuant to the offer could result in a Termination of your
partnership. If a purchase of units results in a Termination, the following
Federal income tax events will be deemed to occur with respect to such
Termination: the terminated Partnership (the "Old Partnership") will be deemed
to have contributed all of its assets (subject to its liabilities) (the
"Hypothetical Contribution") to a new partnership (the "New Partnership") in
exchange for an interest in the New Partnership and, immediately thereafter, the
Old Partnership will be deemed to have distributed interests in the New
Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership
and unitholders who do not tender all of their units (a "Remaining Unitholders")
in proportion to their respective interests in the Old Partnership in
liquidation of the Old Partnership.
A Remaining Unitholder will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Unitholders in the Old Partnership will carry over
intact into the New Partnership. Any Termination may change (and possibly
shorten) a Remaining Unitholder's holding period with respect to its units in
your partnership for Federal income tax purposes.
The New Partnership's adjusted tax basis in its assets will carry over from
the Old Partnership's basis in such assets immediately before the Termination.
Any Termination may also subject the assets of the New Partnership to
depreciable lives in excess of those currently applicable to the Old
Partnership. This would generally decrease the annual average depreciation
deductions allocable to the Remaining Unitholders following consummation of the
offer (thereby increasing the taxable income allocable to their retained units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership.
Section 704(c) of the Code will apply to future allocation of income, gain,
loss and deductions with respect to any New Partnership assets among the AIMCO
Operating Partnership and the Remaining Unitholders following the consummation
of the offer only to the extent that such assets were Section 704(c) property in
the hands of the Old Partnership immediately prior to the Hypothetical
Contribution. Moreover, subject to the Code's anti-abuse regulations, the New
Partnership will not be required to apply the same Section 704(c) allocation
method applied by the Old Partnership. The Hypothetical Contribution will not
trigger a new five-year holding period for purposes of measuring
post-contribution appreciation of assets for the unitholder who contributed such
assets.
Elections as to certain tax matters previously made by the Old Partnership
prior to Termination will not be applicable to the New Partnership unless the
New Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all unitholders. In the case of a Remaining Unitholder reporting on a
tax year other than a calendar year, the closing of your partnership's taxable
year may result in more than 12 months' taxable income or loss of the Old
Partnership being includible in such unitholder's taxable income for the year of
Termination.
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YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the direct
capitalization method. This method involves applying a capitalization rate to
your partnership's annual net operating income. We determined an appropriate
capitalization rate using our best judgment, but our valuation is just an
estimate. In reaching the capitalization rate, we considered your property's
physical condition, location and above-market mortgage interest rates. In
addition, we considered the recent decline in the market for equity securities,
including those of REITs, and the decline in the availability of commercial
mortgage financing. Although the direct capitalization method is a widely
accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of the property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our cash offer consideration. We determined our cash offer
consideration as follows:
- First, we calculated the value of the property owned by your partnership
using the direct capitalization method. We applied a capitalization rate
of % to the property's annual net operating income of $ for
the period from January 1, 1997 to December 31, 1997 to derive a gross
property value of $ . We selected a capitalization rate of
%, based on our experience in valuing similar properties. The lower
the capitalization rate applied to a property's income, the higher its
value. We considered local market sales information for comparable
properties, estimated actual capitalization rates (net operating income
less capital reserves divided by sales price) and then evaluated your
partnership's property in light of its relative competitive position,
taking into account property location, occupancy rate, overall property
condition and other relevant factors. The AIMCO Operating Partnership
believes that arms-length purchasers would base their purchase offers on
capitalization rates comparable to those used by us, however there is no
single correct capitalization rate and others might use different rates.
We subtracted from this gross valuation capital expenditures of
$ to derive a gross property value of $ .
- Second, we calculated the value of the equity of your partnership by
adding to the gross property value the value of the non-real estate
assets of your partnership, and deducting the liabilities of your
partnership, including mortgage debt and debt owed by your partnership to
its general partner or its affiliates after consideration of any
applicable subordination provisions affecting payment of such debt. We
deducted from this value any taxes and certain other costs including
required capital expenditures and deferred maintenance to derive a net
equity value for your partnership of $ .
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $
Capitalization rate.........................................
Gross valuation of your partnership's property..............
Less: Capital expenditures..................................
GROSS PROPERTY VALUE........................................
Plus: Cash and cash equivalents.............................
Plus: Other partnership assets, net of security deposits....
Less: Mortgage debt, including accrued interest.............
Less: Notes payable, including accrued interest.............
Less: Accounts payable and accrued expenses.................
Less: Other liabilities.....................................
PARTNERSHIP VALUATION BEFORE TAXES AND CERTAIN COSTS........
Less: Disposition fees......................................
Less: Extraordinary capital expenditures for deferred
maintenance...............................................
Less: Municipal transfer taxes..............................
Less: Closing costs.........................................
Net valuation of your partnership...........................
Percentage of liquidation proceeds allocated to units.......
Net valuation of units......................................
Total number of units.............................
Valuation per unit.......................................... $
-----------
Cash consideration per unit.................................
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $100 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which
represents the closing price of AIMCO's Class A Common Stock on the New
York Stock Exchange on , 1998.
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The general partner of your partnership is owned by the AIMCO Operating
Partnership. Therefore, the general partner of your partnership makes no
recommendation whether you should tender or refrain from tendering your units.
However, the general partner of your partnership believes that our offer,
including the offer consideration, is fair to you. The AIMCO Operating
Partnership has retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to unitholders of the offer consideration
from a financial point of view. Stanger is not affiliated with AIMCO or your
partnership. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of the
information used by Stanger in forming its fairness opinion. We believe the
information provided to Stanger is accurate in all material respects. See
"Stanger Analysis." You should make your decision whether to tender based upon a
number of factors, including your financial needs, other financial opportunities
available to you and your tax position.
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<PAGE> 2289
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, the
general partner of your partnership and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that financially equivalent to your
interest in your partnership, adjusted to reflect the expenses of the
offer. See "Valuation of Units."
6. The opinion of Stanger, a third party expert, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $ , based on an estimated value of
your partnership's property of $ . The general partner of your
partnership has no present intention to liquidate your partnership or to
sell or finance your partnership's property. See "Background and Reasons
for the Offer".
12. Based on anticipated annualized distributions of $ with respect
to the Preferred OP Units, current annualized distributions of $2.25 with
respect to the Common OP Units and the 1998 distributions of $ with
respect to your units, distributions with respect to the Preferred OP Units
and Common OP Units being offered are expected to be , immediately
following the offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP
Units -- Distributions."
In evaluating these factors, the general partner of your partnership and
the AIMCO Operating Partnership did not quantify or otherwise attach particular
weight to any of them.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment
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properties although there are other ways to value real estate. A
liquidation in the future might generate a higher price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, the general partner of
your partnership has attempted to compare the cash offer consideration against:
(a) the prices at which the units have been sold in the illiquid secondary
market; and (b) estimates of the value of the units on a liquidation basis. The
general partner of your partnership believes that analyzing the alternatives in
terms of estimated value, established based upon currently available data and,
where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the Offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by the general partner of your partnership. These assumptions relate,
among other things to: projections as to the future income, expenses, cash flow
and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to the general partner of your partnership at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash Offer Price............................................ $
Alternatives:
Prices on Secondary Market................................ Not available
Estimated Liquidation Proceeds............................ $
</TABLE>
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Prices on Secondary Market
There is no active market for the units. The general partner of your
partnership is unaware of any secondary market activity in the units. Therefore,
any comparison to prices on the secondary market is not possible at the present
time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. The general
partner of your partnership estimated the liquidation value of units using the
same direct capitalization method and assumptions as we did in valuing the units
for the cash offer consideration. See "Valuation of Units." The only significant
difference is that the general partner of your partnership assumed liquidation
would involve additional selling expenses of % of the sale proceeds. The
general partner of your partnership believes this is a normal and customary cost
of property sales. The liquidation analysis also assumed that your partnership's
property was sold to an independent third-party buyer at the current property
value and that other balance sheet assets (excluding amortizing assets) and
liabilities of your partnership were sold at their book value, and that the net
proceeds of sale were allocated to your partners in accordance with your
partnership's agreement of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, % of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A-1 hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
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We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Fairness Opinion -- Assumptions,
Limitations and Qualifications." We have agreed to indemnify Stanger against
certain liabilities arising out of Stanger's engagement to prepare and deliver
the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending June 30, 1998, which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's property provided by management, including location, number of
units and unit mix, age, and amenities; (iv) reviewed summary historical
operating statements for your partnership's property for 1996 and 1997 and
through June 30, 1998; (v) reviewed operating budgets for your partnership's
property for 1998, as prepared by your partnership; (vi) reviewed information
prepared by management relating to any debt encumbering your partnership's
property; (vii) reviewed information regarding market rental rates and
conditions for apartment properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for apartment properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed a site inspection of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during September 1998. In the
course of the site visit, the physical facilities of your partnership's property
were observed, current rental and occupancy information was obtained, current
local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to the condition of the property, including any deferred
maintenance, capital budgets, status of ongoing or newly planned property
additions, reconfigurations, improvements and other factors affecting the
physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the six month period ending June
30, 1998, the operating budget for 1998 as prepared by your partnership and
discussed with management the current and anticipated operating results of your
partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning,
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among other things, any environmental liabilities, deferred maintenance and
estimated capital expenditure and replacement reserve requirements, the
determination and valuation of non-real estate assets and liabilities of your
partnership, the allocation of your partnership's net values between the general
partner, special limited partner and limited partners of your partnership, the
terms and conditions of any debt encumbering the partnership's property, and the
transaction costs and fees associated with a sale of the property. Stanger also
relied upon the assurance of your partnership, AIMCO, and the management of the
partnership's property that any financial statements, budgets, pro forma
statements, projections, capital expenditure estimates, debt, value estimates
and other information contained in this Prospectus Supplement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience, are consistent with the terms of
your partnership's agreement of limited partnership, and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the partnership's property or other balance sheet
assets and liabilities or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that your
partnership, AIMCO, and the management of the partnership's property are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading; that the highest and best use of the
partnership's property is as improved; and that all calculations were made in
accordance with the terms of your partnership's agreement of limited
partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger's opinion is based on business, economic, real estate and capital
market, and other conditions as of the date of its analysis and addresses the
offer in the context of information available as of the date of its analysis.
Events occurring after such date and before the closing of the proposed offer
could affect the partnership's property or the assumptions used in preparing the
Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix
A-1.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership organized The AIMCO Operating Partnership is organized as a
under Massachusetts law for the purpose of owning and Delaware limited partnership. The AIMCO Operating
managing The Woods of Burnsville. Partnership owns interests (either directly or through
subsidiaries) in numerous multifamily apartment
properties. The AIMCO Operating Partnership conducts
substantially all of the operations of AIMCO, a
corporation organized under Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited partners as a The term of the AIMCO Operating Partnership continues
finite life investment, with limited partners to until December 31, 2093, unless the AIMCO Operating
receive regular cash distributions out of your Partnership is dissolved sooner pursuant to the terms
partnership's Cash Flow (as defined in your of the AIMCO Operating Partnership's agreement of
partnership's agreement of limited partnership). The limited partnership (the "AIMCO Operating Partnership
termination date of your partnership is December 31, Agreement") or as provided by law. See "Description of
2033. OP Units -- General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
The purpose of your partnership is to hold a The purpose of the AIMCO Operating Partnership is to
partnership interest in Burnsville Apartments Limited conduct any business that may be lawfully conducted by
Partnership, a Minnesota limited partnership and to a limited partnership organized pursuant to the
maintain, operate, lease, sell, dispose of and Delaware Revised Uniform Limited Partnership Act (as
otherwise deal with your partnership's property as a amended from time to time, or any successor to such
general partner of Burnsville Apartments Limited statute) (the "Delaware Limited Partnership Act"),
Partnership, in a manner consistent with your provided that such business is to be conducted in a
partnership's property's status as multi-family housing manner that permits AIMCO to be qualified as a REIT,
project. Subject to restrictions contained in your unless AIMCO ceases to qualify as a REIT. The AIMCO
partnership's agreement of limited partnership, your Operating Partnership is authorized to perform any and
partnership may perform all acts necessary to the all acts for the furtherance of the purposes and
business of your partnership including borrowing money business of the AIMCO Operating Partnership, provided
and creating liens. that the AIMCO Operating Partnership may not take, or
refrain from taking, any action which, in the judgment
of its general partner could (i) adversely affect the
ability of AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any governmental
body or agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject to the
foregoing, the AIMCO Operating Partnership may invest
in or enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating partnership
currently invests, and intends to continue to invest,
in a real estate portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is authorized The general partner is authorized to issue additional
to issue additional limited partnership interests in partnership interests in the AIMCO Operating
your partnership and may admit additional limited Partnership for any partnership purpose from time to
partners by selling units to the limited partners of time to the limited partners and to other persons, and
Minneapolis Associates Limited Partners, a Maryland to admit such other persons as additional limited
partnership, who fulfill the requirements set forth in partners, on terms and conditions and for such capital
your partnership's agreement of limited partnership. contributions as may be established by the general
The capital contribution need not be equal for all partner in its sole discretion. The net capital
limited partners and no action or consent is required contribution need not be equal for all OP Unitholders.
in connection with the admission of any additional No action or consent by the OP Unitholders is required
limited partners. in connection with the admission of any additional OP
In addition, the general partner may in its sole Unitholder. See "Description of OP Units -- Management
discretion make call for additional capital from the by the AIMCO GP" in the accompanying Prospectus.
limited partners until the contributions for the Subject to Delaware law, any additional partnership
limited partners equal the amount specified in your interests may be issued in one or more classes, or one
partnership's agreement of limited partnership. Such or more series of any of such classes, with such
contributions are voluntary. designations, preferences and relative, partici-
pating, optional or other special rights, powers and
duties as shall be determined by the general partner,
in its sole and absolute discretion without the
approval of any OP Unitholder, and set forth in a
written document thereafter attached to and made an
exhibit to the AIMCO Operating Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute
partnership, your partnership may enter into contracts funds or other assets to its subsidiaries or other
of any kind with the general partner or its affiliates persons in which it has an equity investment, and such
which are necessary to, in connection with or persons may borrow funds from the AIMCO Operating
incidental to, the accomplishment of the purposes of Partnership, on terms and conditions established in the
your partnership. Affiliates of the general partner sole and absolute discretion of the general partner. To
will receive compensation for services as set forth in the extent consistent with the business purpose of the
your partnership's agreement of limited partnership and AIMCO Operating Partnership and the permitted
may receive compensation for other services it provides activities of the general partner, the AIMCO Operating
as long as such fees are reasonable and competitive. Partnership may transfer assets to joint ventures,
Your partnership may also borrow money from general limited liability companies, partnerships,
partner at a rate of two percentage points over the corporations, business trusts or other business
prime rate as in effect and as published in the Wall entities in which it is or thereby becomes a
Street Journal from time to time, to the same extent participant upon such terms and subject to such
and in the same manner as a loan made by a lender who conditions consistent with the AIMCO Operating Part-
is not a partner. nership Agreement and applicable law as the general
partner, in its sole and absolute discretion, believes
to be advisable. Except as expressly permitted by the
AIMCO Operating Partnership Agreement, neither the
general partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO Operating
Partnership, directly or indirectly, except pursuant to
transactions that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no
to borrow money and issue indebtedness in furtherance restrictions on borrowings, and the general partner has
of any or all of the purposes of your partnership, and full power and authority to borrow money on behalf of
to secure any such debt by mortgage, pledge, or other the AIMCO Operating Partnership. The AIMCO Operating
lien on any of the assets of your partnership. The Partnership has credit agreements that restrict, among
general partner may also borrow money on the general other things, its ability to incur indebtedness. See
credit of your partner for use in the partnership's "Risk Factors -- Risks of Significant Indebtedness" in
business. the accompanying Prospectus.
</TABLE>
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<PAGE> 2297
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand
entitles the limited partners to inspect the books and with a statement of the purpose of such demand and at
records of your partnership at the principal office of such OP Unitholder's own expense, to obtain a current
your partnership at any and all reasonable times during list of the name and last known business, residence or
normal business hours. mailing address of the general partner and each other
OP Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general partner of your partnership has the full, All management powers over the business and affairs of
complete and exclusive authority, responsibility and the AIMCO Operating Partnership are vested in AIMCO-GP,
discretion to manage, control and conduct your Inc., which is the general partner. No OP Unitholder
partnership's business and your partnership's property, has any right to participate in or exercise control or
on behalf of your partnership in its capacity as management power over the business and affairs of the
general partner of Burnsville Apartments Limited AIMCO Operating Partnership. The OP Unitholders have
Partnership. In extension and not in limitation of the the right to vote on certain matters described under
rights and powers given by law and by your "Comparison of Ownership of Your Units and AIMCO OP
partnership's agreement of limited partnership, the Units -- Voting Rights" below. The general partner may
general partner has the right, power and authority to not be removed by the OP Unitholders with or without
do any and all acts and things necessary, proper, cause.
convenient or advisable to effectuate the purpose of
your partnership and to conduct its business in In addition to the powers granted a general partner of
accordance with your partnership's agreement of limited a limited partnership under applicable law or that are
partnership. No limited partners have any authority or granted to the general partner under any other
right to act for or bind your partnership or provision of the AIMCO Operating Partnership Agreement,
participate in or have any control over your the general partner, subject to the other provisions of
partnership's business, except as required by law. the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary
or desirable by it to conduct the business of the AIMCO
Operating Partnership, to exercise all powers of the
AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO
Operating Partnership may incur debt or enter into
other similar credit, guarantee, financing or
refinancing arrangements for any purpose upon such
terms as the general partner determines to be
appropriate, and may perform such other acts and duties
for and on behalf of the AIMCO Operating Partnership as
are provided in the AIMCO Operating Partnership
Agreement. The general partner is authorized to
execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote
of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of limited Notwithstanding anything to the contrary set forth in
partnership, the general partner of your partnership the AIMCO Operating Partnership Agreement, the general
and its affiliates are not liable to your partnership partner is not liable to the AIMCO Operating
or any limited partner for any loss suffered by your Partnership for losses sustained, liabilities incurred
partnership which arises out of any action or inaction or benefits not derived as a result of errors in
of the general partner or its affiliates if the general judgment or mistakes of fact or law of any act or
partner or its affiliates, in good faith, determined omission if the general partner acted in good faith.
that such course of conduct was in the best interests The AIMCO Operating Partnership Agreement provides for
of your partnership and such course of conduct did not indemnification of AIMCO, or any director or officer of
constitute negligence or misconduct on the part of the AIMCO (in its capacity as the previous general partner
general partner or its affiliates. In addition, the of the AIMCO Operating Partnership), the general
general partner and its affiliates are entitled to partner, any officer or director of general partner or
indemnification by your partnership against any loss, the AIMCO Operating Partnership and such other persons
judgments, liabilities, expenses and amounts paid in as the general partner may designate from and against
settlement of any claims sustained by them in all losses, claims, damages, liabilities, joint or
connection with your partnership, provided that the several, expenses (including legal fees), fines,
same were not the result of negligence or misconduct on settlements and other amounts incurred in connection
the part of the general partner or its affiliates. Any with any actions relating to the operations of the
indemnity paid will be paid from, and only to the AIMCO Operating Partnership, as set forth in the AIMCO
extent of, your partnership's assets and no partner Operating Partnership Agreement. The Delaware Limited
will have any personal liability on account thereof. Partnership Act provides that subject to the standards
and restrictions, if any, set forth in its partnership
agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner
or other
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person from and against any and all claims and demands
whatsoever. It is the position of the Securities and
Exchange Commission that indemnification of directors
and officers for liabilities arising under the
Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities
Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership Except in limited circumstances, the general partner
does not provide for the removal of the general partner has exclusive management power over the business and
of your partnership. A general partner may withdraw affairs of the AIMCO Operating Partnership. The general
voluntarily from your partnership with the consent of partner may not be removed as general partner of the
the limited partners owning a majority of the AIMCO Operating Partnership by the OP Unitholders with
outstanding units or may transfer its interest without or without cause. Under the AIMCO Operating Partnership
the consent of the limited partners if the transferee Agreement, the general partner may, in its sole
is an affiliate of the general partner. The general discretion, prevent a transferee of an OP Unit from
partner and the holders of a majority of the units must becoming a substituted limited partner pursuant to the
consent to the admission of a successor or additional AIMCO Operating Partnership Agreement. The general
general partner. A limited partner may not transfer his partner may exercise this right of approval to deter,
interests without the consent of the general partner delay or hamper attempts by persons to acquire a
which may be withheld at the sole discretion of the controlling interest in the AIMCO Operating Partner-
general partner. ship. Additionally, the AIMCO Operating Partnership
Agreement contains restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and Withdrawals"
in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited partnership may With the exception of certain circumstances set forth
be amended by the general partner to comply with any in the AIMCO Operating Partnership Agreement, whereby
applicable laws. Amendments which increase the the general partner may, without the consent of the OP
liability of any partner may not be made without the Unitholders, amend the AIMCO Operating Partnership
consent of such partner. No amendment may be made which Agreement, amendments to the AIMCO Operating
reduces the allocations and distributions to the Partnership Agreement require the consent of the
limited partner without the approval of a majority in holders of a majority of the outstanding Common OP
interest of limited partners other than any limited Units, excluding AIMCO and certain other limited
partners whose allocations or distributions would be exclusions (a "Majority in Interest"). Amendments to
increased as a result of such amendment. Other the AIMCO Operating Partnership Agreement may be
amendments must be approved by the limited partners proposed by the general partner or by holders of a
owning more than 50% of the units and the general Majority in Interest. Following such proposal, the
partner. general partner will submit any proposed amendment to
the OP Unitholders. The general partner will seek the
written consent of the OP Unitholders on the proposed
amendment or will call a meeting to vote thereon. See
"Description of OP Units -- Amendment of the AIMCO
Operating Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in respect of The general partner does not receive compensation for
its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating
and expenses as set forth in your partnership's Partnership. However, the general partner is entitled
agreement of limited partnership, the general partner to payments, allocations and distributions in its
receives no fees in its capacity as general partner. capacity as general partner of the AIMCO Operating
Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part-
be entitled to compensation for additional services nership is responsible for all expenses incurred
rendered. relating to the AIMCO Operating Partnership's ownership
of its assets and the operation of the AIMCO Operating
Partnership and reimburses the general partner for such
expenses paid by the general partner. The employees of
the AIMCO Operating Partnership receive compensation
for their services.
</TABLE>
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<PAGE> 2299
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of limited Except for fraud, willful misconduct or gross
partnership, limited partners are not liable for any negligence, no OP Unitholder has personal liability for
debts, liabilities, contract or obligations of your the AIMCO Operating Partnership's debts and
partnership. A limited partner is liable only to make obligations, and liability of the OP Unitholders for
payments of his capital contributions when due under the AIMCO Operating Partnership's debts and obligations
your partnership's agreement of limited partnership. is generally limited to the amount of their invest-
After its capital contribution has been fully paid, no ment in the AIMCO Operating Partnership. However, the
limited partner will be required to make any further limitations on the liability of limited partners for
capital contributions or lend any funds to your the obligations of a limited partnership have not been
partnership. clearly established in some states. If it were
determined that the AIMCO Operating Partnership had
been conducting business in any state without compli-
ance with the applicable limited partnership statute,
or that the right or the exercise of the right by the
holders of OP Units as a group to make certain
amendments to the AIMCO Operating Partnership Agreement
or to take other action pursuant to the AIMCO Operating
Partnership Agreement constituted participation in the
"control" of the AIMCO Operating Partnership's
business, then a holder of OP Units could be held
liable under certain circumstances for the AIMCO
Operating Partnership's obligations to the same extent
as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of limited Unless otherwise provided for in the relevant
partnership, the general partner must take all steps partnership agreement, Delaware law generally requires
necessary on a reasonable, best efforts basis to a general partner of a Delaware limited partnership to
conduct the business of your partnership and your adhere to fiduciary duty standards under which it owes
partnership's property to maximize the financial its limited partners the highest duties of good faith,
condition of your partnership in the circumstances. The fairness and loyalty and which generally prohibit such
general partner is required to devote only such of its general partner from taking any action or engaging in
time and attention to the affairs of your partnership any transaction as to which it has a conflict of
as it determines, in its discretion, is necessary for interest. The AIMCO Operating Partnership Agreement
conduct of your partnership's business in the expressly authorizes the general partner to enter into,
circumstances and to fulfill the purposes of your on behalf of the AIMCO Operating Partnership, a right
partnership. The general partner and its affiliates of first opportunity arrangement and other conflict
may, in their discretion, develop, own, buy, sell, avoidance agreements with various affiliates of the
finance, refinance, construct or manage any apartment AIMCO Operating Partnership and the general partner, on
project or other business opportunity of any kind or such terms as the general partner, in its sole and
nature, whether or not it is within the vicinity of absolute discretion, believes are advisable. The AIMCO
your partnership's property and whether or not such Operating Partnership Agreement expressly limits the
other apartment complex is in competition with your liability of the general partner by providing that the
partnership's property. Any opportunity of the general general partner, and its officers and directors will
partner in respect of any other apartment project or not be liable or accountable in damages to the AIMCO
business opportunity of any kind or nature is personal Operating Partnership, the limited partners or
to the general partner and does not need to be offered assignees for errors in judgment or mistakes of fact or
to your partnership or any other partner. law or of any act or omission if the general partner or
such director or officer acted in good faith. See
"Description of OP Units -- Fiduciary Responsibilities"
in the accompanying Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
There are no material difference between the taxation The AIMCO Operating Partnership is not subject to
of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units
Partnership. includes in income its allocable share of the AIMCO
Operating Partnership's taxable income or loss when it
determines its individual Federal income tax liability.
Income and loss from the AIMCO Operating Partnership
may be subject to the passive activity limitations. If
an investment in an OP Unit is treated as a passive
activity, income and loss from the AIMCO Operating
Partnership generally can be offset against income and
loss from other investments that constitute "passive
activities" (unless the AIMCO Operating Partnership is
considered a "publicity traded partnership", in which
case income and
</TABLE>
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<PAGE> 2300
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
loss from the AIMCO Operating Partnership can only be
offset against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO Operating
Partnership, however, attributable to dividends from
the Management Subsidiaries (as defined below) or
interest paid by the Management Subsidiaries does not
qualify as passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating Partnership
are not taxable to a holder of OP Units except to the
extent they exceed such Partner's basis in its interest
in the AIMCO Operating Partnership (which will include
such OP Unitholder's allocable share of the AIMCO
Operating Partnership's nonrecourse debt).
Each year, OP Unitholders receive a Schedule K-1 tax
form containing tax information for inclusion in
preparing their Federal income tax returns.
OP Unitholders are required, in some cases, to file
state income tax returns and/or pay state income taxes
in the states in which the AIMCO Operating Partnership
owns property or transacts business, even if they are
not residents of those states. The AIMCO Operating
Partnership may be required to pay state income taxes
in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity equity interests entitling each equity interests entitling each OP
interests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of distri- and as declared by the board of rata share of cash distributions
butions to be made to the partners directors of the general partner of made from Available Cash (as such
of your partnership. the AIMCO Operating Partnership, term is defined in the AIMCO
quarterly cash distribution at a Operating Partnership Agreement) to
rate of $ per Preferred OP the partners of the AIMCO Operating
Unit, subject to adjustments from Partnership. To the extent the
time to time on or after the fifth AIMCO Operating Partnership sells
anniversary of the issue date of or refinances its assets, the net
the Preferred OP Units. proceeds therefrom generally will
be retained by the AIMCO Oper-
ating Partnership for working
capital and new investments rather
than being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner-
of limited partnership, upon the applicable law or in the AIMCO ship Agreement, the OP Unitholders
consent of the limited partners Operating Partnership Agreement, have voting rights only with
owning a majority of the the holders of the Preferred OP respect to certain limited matters
outstanding units is necessary to Units will have the same voting such as certain amendments and
cause the termination of your rights as holders of the Common OP termination of the AIMCO Operating
partnership; to allow the general Units. See "Description of OP Partnership Agreement and certain
partner to become personally liable Units" in the accompanying transactions such as the
or allow your partnership to become Prospectus. So long as any institution of bankruptcy
personally liable on, or to guaran- Preferred OP Units are outstand- proceedings, an assignment for the
tee the Refinancing Documents (as ing, in addition to any other vote benefit of creditors and certain
defined in your partnership's or consent of partners required by transfers by the general partner of
agreement of limited partnership); law or by the AIMCO Operating its interest in the AIMCO Operating
to sell, assign, trans- Partnership Agree- Part-
</TABLE>
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<PAGE> 2301
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
fer, encumber or otherwise dispose ment, the affirmative vote or nership or the admission of a
of all or any portion of your consent of holders of at least 50% successor general partner.
partnership's general partner of the outstanding Preferred OP
interest in Burnsville Apartments Units will be necessary for Under the AIMCO Operating Partner-
Limited Partnership or the effecting any amendment of any of ship Agreement, the general partner
partnership's property other than the provisions of the Partnership has the power to effect the
as contemplated in the Refinancing Unit Designation of the Preferred acquisition, sale, transfer,
Documents; to amend your OP Units that materially and exchange or other disposition of
partnership's agreement of limited adversely affects the rights or any assets of the AIMCO Operating
partnership in any manner which preferences of the holders of the Partnership (including, but not
would alter the substance of your Preferred OP Units. The creation or limited to, the exercise or grant
agreement, except in limited issuance of any class or series of of any conversion, option,
circumstances and to approve the partnership units, including, privilege or subscription right or
withdrawal of a general partner. without limitation, any partner- any other right available in
For purposes of obtaining such ship units that may have rights connection with any assets at any
consent, a written request will be senior or superior to the Preferred time held by the AIMCO Operating
made by the general partner to the OP Units, shall not be deemed to Partnership) or the merger,
limited partners and unless written materially adversely affect the consolidation, reorganization or
notice objecting thereto is given rights or preferences of the other combination of the AIMCO
by a limited partner within thirty holders of Preferred OP Units. With Operating Partnership with or into
days, the consent of such limited respect to the exercise of the another entity, all without the
partner will be assumed to be above described voting rights, each consent of the OP Unitholders.
given. Preferred OP Units shall have one
A general partner may cause the (1) vote per Preferred OP Unit. The general partner may cause the
dissolution of the your partnership dissolution of the AIMCO Operating
by retiring. Your partnership may Partnership by an "event of
be continued by the remaining withdrawal," as defined in the
general partner if, in its sole Delaware Limited Partnership Act
discretion, it elects to do so. If (including, without limitation,
there is no general partner to bankruptcy), unless, within 90 days
continue your partnership, the after the withdrawal, holders of a
limited partners, within ninety "majority in interest," as defined
days of the retirement, may elect in the Delaware Limited Partnership
to continue your partnership by Act, agree in writing, in their
electing a substitute general sole and absolute discretion, to
partner by a vote of the holders of continue the business of the AIMCO
a majority of the outstanding Operating Partnership and to the
units. appointment of a successor general
partner. The general partner may
elect to dissolve the AIMCO
Operating Partnership in its sole
and absolute discretion, with or
without the consent of the OP
Unitholders. See "Description of OP
Units -- Dissolution and Winding
Up" in the accompanying Prospectus.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement of Holders of Preferred OP Units will Subject to the rights of holders of
limited partnership specifies how be entitled to receive, when and as any outstanding Preferred OP Units,
the cash available for declared by the board of directors the AIMCO Operating Partnership
distribution, whether arising from of the general partner of the AIMCO Agreement requires the general
operations or sales or refinancing, Operating Partnership, quarterly partner to cause the AIMCO
is to be shared among the partners. cash distributions at the rate of Operating Partnership to dis-
Distributions of Cash Flow are made $ per Preferred OP Unit; tribute quarterly all, or such
within 90 days after the close of provided, however, that at any time portion as the general partner may
each fiscal year. The distributions and from time to time on or after in its sole and absolute discretion
payable to the partners are not the fifth anniversary of the issue determine, of Available Cash (as
fixed in amount and depend upon the date of the Preferred OP Units, the defined in the AIMCO Operating
operating results and net sales or AIMCO Operating Partnership may Partnership Agreement) generated by
refinancing proceeds available from adjust the annual distribution rate the AIMCO Operating Partnership
the disposition of your on the Preferred OP Units to the during such quarter to the general
partnership's assets. Your lower of (i) % plus the annual partner, the special limited
partnership has not made interest rate then applicable to partner and the holders of Common
distributions in the past and is U.S. Treasury notes with a maturity OP Units on the record date
not projected to make distributions of five years, and (ii) the annual established by the general partner
in 1998. dividend rate on the most recently with respect to such quarter, in
issued AIMCO non-convertible accordance with their respective
preferred stock which ranks on a interests in the AIMCO Operating
parity with its Class H Cumu- Partnership on such record date.
Holders of any other Pre-
</TABLE>
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<PAGE> 2302
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
lative Preferred Stock. Such ferred OP Units issued in the
distributions will be cumulative future may have priority over the
from the date of original issue. general partner, the special
Holders of Preferred OP Units will limited partner and holders of
not be entitled to receive any Common OP Units with respect to
distributions in excess of distributions of Available Cash,
cumulative distributions on the distributions upon liquidation or
Preferred OP Units. No interest, or other distributions. See "Per Share
sum of money in lieu of interest, and Per Unit Data" in the
shall be payable in respect of any accompanying Prospectus.
distribution payment or payments on
the Preferred OP Units that may be The general partner in its sole and
in arrears. absolute discretion may distribute
to the OP Unitholders Available
When distributions are not paid in Cash on a more frequent basis and
full upon the Preferred OP Units or provide for an appropriate record
any Parity Units, all distributions date.
declared upon the Preferred OP
Units and any Parity Units shall be The AIMCO Operating Partnership
declared ratably in proportion to Agreement requires the general
the respective amounts of partner to take such reasonable
distributions accumulated, accrued efforts, as determined by it in its
and unpaid on the Preferred OP sole and absolute discretion and
Units and such Parity Units. Unless consistent with AIMCO's
full cumulative distributions on qualification as a REIT, to cause
the Preferred OP Units have been the AIMCO Operating Partnership to
declared and paid, except in distribute sufficient amounts to
limited circumstances, no enable the general partner to
distributions may be declared or transfer funds to AIMCO and enable
paid or set apart for payment by AIMCO to pay stockholder dividends
the AIMCO Operating Partnership and that will (i) satisfy the
no other distribution of cash or requirements for qualifying as a
other property may be declared or REIT under the Code and the
made, directly or indirectly, by Treasury Regulations and (ii) avoid
the AIMCO Operating Partnership any Federal income or excise tax
with respect to any Junior Units, liability of AIMCO. See
nor shall any Junior Units be re- "Description of OP
deemed, purchased or otherwise Units -- Distributions" in the
acquired for consideration, nor accompanying Prospectus.
shall any other cash or other
property be paid or distributed to
or for the benefit of holders of
Junior Units. See "Description of
Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may transfer his There is no public market for the There is no public market for the
units to any person other than a Preferred OP Units and the OP Units. The AIMCO Operating Part-
minor, except in limited Preferred OP Units are not listed nership Agreement restricts the
circumstances, or to an incompe- on any securities exchange. The transferability of the OP Units.
tent and such person will be Preferred OP Units are subject to Until the expiration of one year
substituted as a limited partner by restrictions on transfer as set from the date on which an OP
such person if: (1) the assignee forth in the AIMCO Operating Unitholder acquired OP Units,
agrees to be bound by the Partnership Agreement. subject to certain exceptions, such
provisions of your partnership's OP Unitholder may not transfer all
agreement of limited partnership, Pursuant to the AIMCO Operating or any portion of its OP Units to
(2) the approval of the general Partnership Agreement, until the any transferee without the consent
partner which may be withheld in expiration of one year from the of the general partner, which
the sole and absolute discretion of date on which a holder of Preferred consent may be withheld in its sole
the general partner has been OP Units acquired Preferred OP and absolute discretion. After the
granted and (3) the assignor and Units, subject to certain expiration of one year, such OP
assignee have complied with such exceptions, such holder of Unitholder has the right to
other conditions as set forth in Preferred OP Units may not transfer transfer all or any portion of its
your partnership's agreement of all or any portion of its Pre- OP Units to any person, subject to
limited partnership. ferred OP Units to any transferee the satisfaction of certain
There are no redemption rights without the consent of the general conditions specified in the AIMCO
associated with your units. partner, which consent may be Operating Partnership Agreement,
withheld in its sole and absolute including the general partner's
discretion. After the expiration of right of first refusal. See
one year, such holders of Preferred "Description of OP Units --
OP Units has the right to transfer Transfers and Withdrawals" in the
all or any portion of its Preferred accompanying Prospectus.
OP Units to any person, subject to
the satisfaction of
</TABLE>
S-70
<PAGE> 2303
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
certain conditions specified in the After the first anniversary of
AIMCO Operating Partnership Agree- becoming a holder of Common OP
ment, including the general Units, an OP Unitholder has the
partner's right of first refusal. right, subject to the terms and
conditions of the AIMCO Operating
After a one-year holding period, a Partnership Agreement, to require
holder may redeem Preferred OP the AIMCO Operating Partnership to
Units and receive in exchange redeem all or a portion of the
therefor, at the AIMCO Operating Common OP Units held by such party
Partnership's option, (i) subject in exchange for a cash amount based
to the terms of any Senior Units, on the value of shares of Class A
cash in an amount equal to the Common Stock. See "Description of
Liquidation Preference of the OP Units -- Redemption Rights" in
Preferred OP Units tendered for the accompanying Prospectus. Upon
redemption, (ii) a number of shares receipt of a notice of redemption,
of Class I Cumulative Preferred the general partner may, in its
Stock of AIMCO that pay an sole and absolute discretion but
aggregate amount of dividends yield subject to the restrictions on the
equivalent to the distributions on ownership of Class A Common Stock
the Preferred OP Units tendered for imposed under the AIMCO's charter
redemption and are part of a class and the transfer restrictions and
or series of preferred stock that other limitations thereof, elect to
is then listed on the New York cause AIMCO to acquire some or all
Stock Exchange or another national of the tendered Common OP Units in
securities exchange, or (iii) a exchange for Class A Common Stock,
number of shares of Class A Common based on an exchange ratio of one
Stock of AIMCO that is equal in share of Class A Common Stock for
Value to the Liquidation Preference each Common OP Unit, subject to
of the Preferred OP Units tendered adjustment as provided in the AIMCO
for redemption. The Preferred OP Operating Partnership Agreement.
Units may not be redeemed at the
option of the AIMCO Operating
Partnership. See "Description of
Preferred OP Units -- Redemption."
</TABLE>
S-71
<PAGE> 2304
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a subsidiary of AIMCO on
October 1, 1998, when AIMCO merged with Insignia. Accordingly, the general
partner of your partnership is an affiliate of the AIMCO Operating Partnership
and, therefore, has substantial conflicts of interest with respect to the offer.
The general partner of your partnership has a fiduciary obligation to obtain a
fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to
remove the property manager for your partnership's property, under certain
circumstances, even though the property manager is also an affiliate of AIMCO.
The conflicts of interest include the fact that a decision to remove, for any
reason, the general partner of your partnership from its current position as a
general partner of your partnership would result in a decrease or elimination of
the substantial management fees paid to an affiliate of the general partner of
your partnership for managing your partnership's property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fees
in its capacity as general partner of your partnership but may receive
reimbursement for expenses generated in that capacity. The property manager
received management fees of $155,150 in 1996, $160,843 in 1997 and $90,029 for
the first six months of 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the manager of your partnership's
property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-72
<PAGE> 2305
YOUR PARTNERSHIP
GENERAL
Minneapolis Associates II Limited Partnership is a Massachusetts limited
partnership which owns a 45% interest in Burnsville Apartment Limited
Partnership. Insignia acquired your partnership in November 1997. AIMCO acquired
Insignia in October, 1998. There are currently a total of 35 limited partners of
your partnership and a total of 79 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the single apartment property
described below. Your partnership has no employees.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on May 12, 1983 for the purpose of owning and
operating, through Burnsville Apartment Limited Partnership, a single apartment
property located in Burnsville, Minnesota, known as "The Woods of Burnsville."
Your partnership's property consists of 400 apartment units. The total rentable
square footage of your partnership's property is 359,861 square feet. The
average annual rent per apartment unit is approximately $8,049.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/dryer, microwave, fireplace, and patio/balcony.
PROPERTY MANAGEMENT
Since November 1997, your partnership's property has been managed by an
entity which is now an affiliate of AIMCO. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The management fee which your
partnership paid the property manager during 1996, 1997 and the first six months
of 1998 were $155,150, $160,843 and $90,029, respectively.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2033
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement
S-73
<PAGE> 2306
of various building systems and other replacements and renovations in the
ordinary course of business. All capital improvement and renovation costs are
expected to be paid from operating cash flows, cash reserves, or from short-term
or long-term borrowings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of December 31, 1997, your partnership had a first mortgage in
the amount of $16,580,000, a second mortgage in the amount of $550,000, and a
third mortgage in the amount of $750,000, all due August 1999, payable to
Dreyfus. The first mortgage bears interest at 7.00%, and the second and third
mortgages do not bear interest. Your partnership's agreement of limited
partnership also allows your general partner to lend to your partnership. The
property also secures $275,892 owed to the general partner due in August 1999.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
S-74
<PAGE> 2307
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL
STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN
THE OFFER.
Below is selected financial information for Minneapolis Associates II
Limited Partnership taken from the financial statements described above. See
"Index to Financial Statements."
<TABLE>
<CAPTION>
MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP
----------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
------------------------ -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents...... $ 70,022 Not $ 186,739 $ 143,331 $ 208,313 $ 244,836 $ 293,376
Land & Building................ 19,824,182 Available 19,714,125 19,389,278 19,167,207 18,972,952 18,811,013
Accumulated Depreciation....... (8,597,170) (8,293,676) (7,686,688) (7,101,498) (6,524,014) (5,886,808)
Other Assets................... 1,462,634 0 1,501,756 1,483,076 1,308,938 1,231,457 1,240,452
----------- ---------- ----------- ----------- ----------- ----------- -----------
Total Assets.......... $12,759,668 $ 0 $13,108,944 $13,328,997 $13,582,960 $13,925,231 $14,458,033
=========== ========== =========== =========== =========== =========== ===========
Mortgage & Accrued Interest.... 18,266,878 18,266,876 18,266,872 18,266,868 18,266,867 18,266,867
Other Liabilities.............. 728,178 1,058,213 1,072,907 979,034 1,041,539 1,029,139
----------- ---------- ----------- ----------- ----------- ----------- -----------
Total Liabilities..... $18,995,056 $ 0 $19,325,089 $19,339,779 $19,245,902 $19,308,406 $19,296,006
----------- ---------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)..... $(6,539,080) $ 0 $(6,216,145) $(6,010,782) $(5,662,942) $(5,383,175) $(4,837,973)
=========== ========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP
---------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Rental Revenue........................ $1,701,022 $ $3,238,820 $2,976,393 $2,837,199 $2,981,522 $2,926,845
Other Income.......................... 122,569 241,152 225,536 212,390 178,287 176,683
---------- --------- ---------- ---------- ---------- ---------- ----------
Total Revenue................ $1,823,591 $ 0 $3,479,972 $3,201,929 $3,049,589 $3,159,809 $3,103,528
---------- --------- ---------- ---------- ---------- ---------- ----------
Operating Expenses.................... 585,258 1,159,557 1,199,723 1,010,145 1,331,471 1,291,561
General & Administrative.............. 108,987 224,406 85,300 103,575 86,512 107,880
Depreciation.......................... 303,494 606,988 585,190 577,484 637,206 666,591
Interest Expense...................... 607,100 1,160,604 1,160,600 1,160,600 1,160,600 1,170,302
Property Taxes........................ 238,192 533,780 518,956 477,552 489,222 525,000
---------- --------- ---------- ---------- ---------- ---------- ----------
Total Expenses............... $1,843,031 $ 0 $3,685,335 $3,549,769 $3,329,356 $3,705,011 $3,761,334
---------- --------- ---------- ---------- ---------- ---------- ----------
Net Income............................ $ (19,440) $ 0 $ (205,363) $ (347,840) $ (279,767) $ (545,202) $ (657,806)
========== ========= ========== ========== ========== ========== ==========
</TABLE>
S-75
<PAGE> 2308
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein. Due to this
partnership being a recent acquisition, very little discussion is available for
variances.
Results of Operations
Six Months Ended June 30, 1998
Due to this partnership being a recent acquisition, no data is available
for the six months ended June 30, 1997.
Net Income
Your Partnership recognized a net loss of $19,440 for the six months ended
June 30, 1998.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,823,591 for the six months ended June 30, 1998.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $585,258 for the
six months ended June 30, 1998. Management expenses totaled $90,029 for the six
months ended June 30, 1998.
General and Administrative Expenses
General and administrative expenses totaled $108,987 for the six months
ended June 30, 1998.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $607,100 for the six months ended June 30, 1998.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized a net loss $205,363 for the year ended December
31, 1997, compared to a net loss of $347,840 for the year ended December 31,
1996. The increase of $142,477, was primarily the result of an increase in
rental revenues offset by an increase in administrative expenses. These factors
are discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$3,479,972 for the year ended December 31, 1997, compared to $3,201,929 for the
year ended December 31, 1996, an increase of $278,043, or 8.68%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,159,557 for
the year ended December 31, 1997, compared to $1,199,723 for the year ended
December 31,
S-76
<PAGE> 2309
1996, a decrease of $40,166 or 3.35%. Management expenses totaled $160,843
for the year ended December 31, 1997, compared to $155,150 for the year ended
December 31, 1996, an increase of $5,693, or 3.67%.
General and Administrative Expenses
General and administrative expenses totaled $224,406 for the year ended
December 31, 1997 compared to $85,300 for the year ended December 31, 1996, an
increase of $139,106 or 163.08%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $1,160,604 for the year ended December 31, 1997, compared to
$1,160,600 for the year ended December 31, 1996, an increase of $4.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $347,840 for the year ended
December 31, 1996, compared to a net loss of $279,767 for the year ended
December 31, 1995. The decrease in net income of $68,073, or 24.33% was
primarily the result of an increase operating expenses. These factors are
discussed in more detail in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$3,201,929 for the year ended December 31, 1996, compared to $3,049,589 for the
year ended December 31, 1995, an increase of $152,340, or 5.00%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $1,199,723 for
the year ended December 31, 1996, compared to $1,010,145 for the year ended
December 31, 1995, an increase of $189,578 or 18.77%. Management expenses
totaled $155,150 for the year ended December 31, 1996, compared to $148,243 for
the year ended December 31, 1995, an increase of $6,907, or 4.66%.
General and Administrative Expenses
General and administrative expenses totaled $85,300 for the year ended
December 31, 1996 compared to $103,575 for the year ended December 31, 1995, a
decrease of $18,275 or 17.64%.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $1,160,600 for the year ended December 31, 1996, compared to
$1,160,600 for the year ended December 31, 1995.
Liquidity and Capital Resources
As of June 30, 1998, your partnership had $70,022 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
S-77
<PAGE> 2310
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership and
its affiliates are not liable to your partnership or any limited partner for any
loss suffered by your partnership which arises out of any action or inaction of
the general partner or its affiliates if the general partner or its affiliates,
in good faith, determined that such course of conduct was in the best interests
of your partnership and such course of conduct did not constitute negligence or
misconduct on the part of the general partner or its affiliates. The general
partner of your partnership is owned by AIMCO. See "Conflicts of Interest".
The general partner and its affiliates are entitled to indemnification by
your partnership against any loss, judgments, liabilities, expenses and amounts
paid in settlement of any claims sustained by them in connection with your
partnership, provided that the same were not the result of negligence or
misconduct on the part of the general partner or its affiliates. Any indemnity
paid will be paid from, and only to the extent of, your partnership's assets and
no partner will have any personal liability on account thereof. As part of its
assumption of liabilities in the consolidation, AIMCO will indemnify the general
partner of your partnership and their affiliates for periods prior to and
following the consolidation to the extent of the indemnity under the terms of
your partnership's agreement of limited partnership and applicable law.
Your partnership will not incur the cost of the portion of any insurance
which insures any party against any liabilities as to which such party is
prohibited from being indemnified under your partnership's agreement of limited
partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has made no distributions in the past five years.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no units transferred in sale transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Neither AIMCO, nor, to the best of its knowledge, any of its affiliates,
(i) beneficially own or have a right to acquire any units, (ii) have effected
any transaction in the units, or (iii) have any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
S-78
<PAGE> 2311
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The general partner of your partnership has not received any compensation
from your partnership.
An affiliate of AIMCO manages the property of your partnership. Your
partnership has historically paid the property management fees as described in
the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1995........................................... $148,243
1996........................................... 155,150
1997........................................... 160,843
1998 (through June 30)......................... 90,029
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to the
general partner of your partnership, or the company paid to the property manager
or AIMCO and its affiliates.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $
million will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership will obtain
all such funds from cash from operations, equity issuances and short term
borrowings.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by AIMCO:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The financial statements of Burnsville Apartments Limited Partnership at
December 31, 1997, 1996 and 1995, and for each of the three years in the period
ended December 31, 1997, appearing in this Prospectus Supplement have been
audited by Reznick Fedder & Silverman, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
S-79
<PAGE> 2312
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2
Condensed Statement of Operations for the six months ended
June 30, 1998 (unaudited)................................. F-3
Condensed Statement of Cash Flows for the six months ended
June 30, 1998 (unaudited)................................. F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors' Report................................ F-8
Balance Sheets as of December 31, 1997 and 1996............. F-9
Statements of Operations for the years ended December 31,
1997 and 1996............................................. F-10
Statements of Partners' Deficit for the years ended December
31, 1997 and 1996......................................... F-11
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-12
Notes to Financial Statements............................... F-13
Independent Auditors' Report................................ F-17
Balance Sheets as of December 31, 1996 and 1995............. F-18
Statements of Operations for the years ended December 31,
1996 and 1995............................................. F-19
Statements of Partners' Deficit for the years ended December
31, 1996 and 1995......................................... F-20
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-21
Notes to Financial Statements............................... F-22
</TABLE>
F-1
<PAGE> 2313
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 70,022
Receivables and Deposits.................................... 90,893
Restricted Escrows.......................................... 1,444,809
Other Assets................................................ (73,266)
Investment Property:
Land...................................................... $ 1,439,962
Building and related personal property.................... 18,384,219
-----------
19,824,181
Less: Accumulated depreciation............................ (8,597,170) 11,227,011
----------- -----------
Total Assets...................................... $12,759,469
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 34,465
Other Accrued Liabilities................................... 425,224
Property Taxes Payable...................................... 559,290
Tenant Security Deposits.................................... 96,076
Notes Payable............................................... 17,880,000
Partners' Deficit........................................... (6,235,586)
-----------
Total Liabilities and Partners' Capital........... $12,759,469
===========
</TABLE>
F-2
<PAGE> 2314
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 1998
<TABLE>
<S> <C>
Revenues:
Rental Income............................................. $1,701,022
Other Income.............................................. 122,569
----------
Total Revenues.................................... 1,823,591
Expenses:
Operating Expenses........................................ 585,258
General and Administrative Expenses....................... 108,987
Depreciation Expense...................................... 303,494
Interest Expense.......................................... 607,100
Property Tax Expense...................................... 238,192
----------
Total Expenses.................................... 1,843,031
Net (loss)........................................ $ (19,440)
==========
</TABLE>
F-3
<PAGE> 2315
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Operating Activities:
Net Income (loss)......................................... $ (19,440)
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 303,494
Changes in accounts:
Receivables and deposits and other assets............ 175,868
Accounts Payable and accrued expenses................ (318,078)
----------
Net cash provided by (used in) operating
activities........................................ 141,844
----------
Investing Activities:
Property improvements and replacements.................... (110,057)
Net (increase)/decrease in restricted escrows............. (148,504)
----------
Net cash provided by (used in) investing
activities........................................ (258,561)
----------
Financing Activities:
Distributions to partners................................. --
Payments on mortgage......................................
----------
Net cash provided by (used in) financing
activities........................................ --
----------
Net increase (decrease) in cash and cash
equivalents....................................... (116,717)
Cash and cash equivalents at beginning of year.............. 186,739
----------
Cash and cash equivalents at end of period.................. $ 70,022
==========
</TABLE>
F-4
<PAGE> 2316
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Burnsville Apartments
Limited Partnership as of June 30, 1998 and for the six months ended June 30,
1998 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
all such adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
F-5
<PAGE> 2317
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997 AND 1996
F-6
<PAGE> 2318
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-8
Financial Statements
Balance Sheets............................................ F-9
Statements of Operations.................................. F-10
Statements of Partners' Deficit........................... F-11
Statements of Cash Flows.................................. F-12
Notes to Financial Statements............................. F-13
</TABLE>
F-7
<PAGE> 2319
INDEPENDENT AUDITORS' REPORT
To the Partners
Burnsville Apartments Limited Partnership
We have audited the accompanying balance sheets of Burnsville Apartments
Limited Partnership as of December 31, 1997 and 1996, and the related statements
of operations, partners' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Burnsville Apartments
Limited Partnership as of December 31, 1997 and 1996, and the results of its
operations, the changes in partners' deficit and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
February 4, 1998
F-8
<PAGE> 2320
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment in Real Estate
Land...................................................... $ 1,404,749 $ 1,404,749
Building, improvements and personal property, less
accumulated depreciation of $8,293,676 and $7,686,688,
respectively........................................... 10,015,700 10,297,841
----------- -----------
11,420,449 11,702,590
----------- -----------
Other Assets
Cash and cash equivalents................................. 186,739 143,331
Tenant security deposits -- funded........................ 87,961 113,783
Accounts receivable....................................... 26,652 3,474
Prepaid expenses.......................................... 1,178 8,123
Bond reserve fund......................................... 580,300 580,300
Interest reserve.......................................... 716,005 634,141
Financing fees, net of accumulated amortization of
$446,291 and $392,696, respectively.................... 89,660 143,255
----------- -----------
$13,108,944 $13,328,997
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities Applicable to Investment in Real Estate
Mortgage payable.......................................... $17,880,000 $17,880,000
Other Liabilities
Accounts payable and accrued expenses..................... 674,289 708,504
Accrued interest -- mortgage.............................. 386,876 386,872
Security deposits payable................................. 108,032 88,511
Note payable -- general partner........................... 275,892 275,892
----------- -----------
19,325,089 19,339,779
----------- -----------
Commitments................................................. -- --
Partners' Deficit........................................... (6,216,145) (6,010,782)
----------- -----------
$13,108,944 $13,328,997
=========== ===========
</TABLE>
See notes to financial statements
F-9
<PAGE> 2321
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenue
Rental income............................................. $3,381,715 $3,224,453
Other income.............................................. 169,111 156,170
Less: Vacancies........................................... (106,642) (152,672)
Concessions......................................... (36,253) (95,388)
---------- ----------
Total revenue..................................... 3,407,931 3,132,563
---------- ----------
Operating expenses
Leasing................................................... 127,083 197,225
General and administrative................................ 224,406 85,300
Management fees........................................... 160,843 155,150
Utilities................................................. 253,875 260,103
Repairs and maintenance................................... 257,478 228,453
Janitorial................................................ 67,830 64,982
Painting and decorating................................... 71,051 80,068
Insurance................................................. 64,458 62,661
Taxes..................................................... 533,780 518,956
---------- ----------
Total operating expenses.......................... 1,760,804 1,652,898
---------- ----------
Other (income) expenses
Depreciation.............................................. 606,988 585,190
Amortization.............................................. 53,595 53,595
Interest income........................................... (72,041) (69,366)
Interest expense -- mortgage.............................. 1,160,604 1,160,600
Bond fees................................................. 36,516 49,970
Other expenses............................................ 66,828 47,516
---------- ----------
Total other (income) expenses..................... 1,852,490 1,827,505
---------- ----------
Net Loss.......................................... $ (205,363) $ (347,840)
========== ==========
</TABLE>
See notes to financial statements
F-10
<PAGE> 2322
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<S> <C>
Partners' deficit, December 31, 1995........................ $(5,662,942)
Net loss.................................................... (347,840)
-----------
Partners' deficit, December 31, 1996........................ (6,010,782)
Net loss.................................................... (205,363)
-----------
Partners' deficit, December 31, 1997........................ $(6,216,145)
===========
</TABLE>
See notes to financial statements
F-11
<PAGE> 2323
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (205,363) $ (347,840)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation........................................... 606,988 585,190
Amortization........................................... 53,595 53,595
(Increase) decrease in accounts receivable............. (23,178) 4,047
Increase in interest reserve........................... (81,864) (119,671)
(Decrease) increase in accounts payable and accrued
expenses.............................................. (34,215) 94,639
Increase in accrued interest........................... 4 --
Net security deposits received (paid).................. 45,343 (12,458)
Decrease in prepaid expenses........................... 6,945 1,674
---------- ----------
Net cash provided by operating activities......... 368,255 259,176
---------- ----------
Cash flows from investing activities
Investment in real estate.............................. (324,847) (222,071)
---------- ----------
Net cash used in investing activities............. (324,847) (222,071)
---------- ----------
Net Increase in Cash and Cash Equivalents......... 43,408 37,105
Cash and cash equivalents, beginning........................ 143,331 106,226
---------- ----------
Cash and cash equivalents, end.............................. $ 186,739 $ 143,331
========== ==========
Supplemental disclosure of cash flow information Cash paid
during the year for interest.............................. $1,160,600 $1,160,604
========== ==========
</TABLE>
See notes to financial statements
F-12
<PAGE> 2324
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Burnsville Apartments Limited Partnership ("the Partnership") was formed as
a limited partnership under the laws of the State of Minnesota on May 12, 1983,
for the purpose of developing, constructing and operating a multi-family housing
project. The project consists of 400 units and is operating under the name of
The Woods of Burnsville. The Partnership has entered into an agreement with the
City of Burnsville which provides for the rental of at least 20% of the units to
tenants whose income does not exceed 80% of the median area income. This
restriction is necessary in order for the Partnership to comply with the
provisions of the Internal Revenue Code governing preservation of the tax-exempt
status of the bonds issued by the City of Burnsville.
Investment in Real Estate
Investment in real estate is carried at cost. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives on the straight-line method. For income tax
purposes, accelerated methods and lives are used.
Amortization
Financing fees are being amortized over the term of the mortgage loan using
the straight-line method.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership and
tenants of the property are operating leases.
Cash Equivalents
For purposes of the statements of cash flows, the Partnership considers all
highly liquid investments to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE B -- FINANCING
A first mortgage in the amount of $16,580,000 is due August 1, 1999, with
semi-annual payments of interest only at 7% per annum until maturity ($580,300
is being held in a bond reserve fund by the trustee to fund interest payments on
the bonds, if necessary). The City of Burnsville, Minnesota, has issued a 1989
series of tax-exempt bonds, which are secured by an irrevocable letter-of-credit
for $17,218,330 ($16,580,000 to pay principal on the bonds and $638,330 to pay
interest on the bonds or the portion of the bonds representing accrued
interest). The Partnership is obligated to reimburse the lender for any amount
drawn on the letter-of-
F-13
<PAGE> 2325
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
credit. There was no outstanding balance at December 31, 1997. The mortgage is
secured by the rental property and an assignment of all project rents and
leases.
The Partnership has established an interest reserve account to pay the
semi-annual interest payments due February and August of each year. At December
31, 1997 and 1996, the interest reserve balance is $716,005 and $634,141,
respectively.
A second mortgage in the amount of $550,000 is noninterest bearing and is
due August 1, 1999. This note is secured by the rental property and an
assignment of all project rents and leases and is subordinate to the first
mortgage.
The remaining debt is evidenced by a third mortgage in the amount of
$750,000, which is noninterest bearing and is due August 1, 1999. This note
requires the payment of bonus interest up to $250,000 based on the net proceeds
received in the event of a sale or refinancing of the property. Such interest
will be expensed, if applicable, upon a sale or refinancing. This note is also
secured by the rental property and an assignment of all project rents and leases
and is subordinate to the first and second mortgages.
Bond fees of $36,516 and $49,970 related to the administration of the bonds
were charged to operations during 1997 and 1996, respectively.
NOTE C -- RELATED PARTY TRANSACTION
The project was managed through October 27, 1997 by Winthrop Management, an
affiliate of the general partner, which receives an annual fee of 5% of the
gross receipts of the property. Property management fees of $132,487 and
$155,150 were charged to operations during 1997 and 1996, respectively.
On October 28, 1997, the Partnership terminated Winthrop Management as the
managing agent, and appointed Insignia Residential Group, L.P. ("Insignia") the
new management agent. (See note F). The management agreement provides for a
management fee of 5% of gross receipts of the property. Property management fees
of $28,356 were charged to operations during 1997. At December 31, 1997, unpaid
management fees totaled $14,178.
NOTE D -- COMMITMENT
The Partnership is required to provide additional capital up to $750,000 to
fund future debt service shortfalls. Minneapolis II, the general partner, agreed
to fund up to $750,000 to the Partnership for these payments. Advances from
Minneapolis II totaling $275,892 were outstanding as of December 31, 1997 and
1996, respectively.
This loan is noninterest bearing and due on August 1, 1999. This loan is
equal in priority to the second mortgage and is collateralized by the rental
property.
NOTE E -- CONCENTRATION OF CREDIT NOTE
The Partnership maintains its cash balances in three banks. The balances
are insured by the Federal Deposit Insurance Corporation up to $100,000 by each
bank. As of December 31, 1997, the uninsured portion of the cash balances held
at one of the banks was $276,155.
NOTE F -- OTHER INFORMATION
On October 28, 1997, Insignia Financial Group ("IFG") acquired 100% of the
class B stock of First Winthrop Corporation ("FWC"). FWC is an affiliate of the
general partner.
F-14
<PAGE> 2326
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
[WINTHROP LOGO]
F-15
<PAGE> 2327
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-17
Financial Statements
Balance Sheets............................................ F-18
Statements of Operations.................................. F-19
Statements of Partners' Deficit........................... F-20
Statements of Cash Flows.................................. F-21
Notes to Financial Statements............................. F-22
</TABLE>
F-16
<PAGE> 2328
INDEPENDENT AUDITORS' REPORT
To the Partners
Burnsville Apartments Limited Partnership
We have audited the accompanying balance sheets of Burnsville Apartments
Limited Partnership as of December 31, 1996 and 1995, and the related statements
of operations, partners' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Burnsville Apartments
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations, the changes in partners' deficit and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Bethesda, Maryland
February 14, 1997
F-17
<PAGE> 2329
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Investment in Real Estate
Land...................................................... $ 1,404,749 $ 1,404,749
Building, improvements and personal property, less
accumulated depreciation of $7,686,688 and
$7,101,498............................................. 10,297,841 10,660,960
----------- -----------
11,702,590 12,065,709
Other Assets
Cash and cash equivalents................................. 143,331 106,226
Tenant security deposits -- funded........................ 113,783 102,087
Accounts receivable....................................... 3,474 7,521
Prepaid expenses.......................................... 8,123 9,797
Bond reserve fund......................................... 580,300 580,300
Interest reserve.......................................... 634,141 514,470
Financing fees, net of accumulated amortization of
$392,696 and $339,101.................................. 143,255 196,850
----------- -----------
$13,328,997 $13,582,960
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities Applicable to Investment in Real Estate
Mortgage payable.......................................... $17,880,000 $17,880,000
Other Liabilities
Accounts payable and accrued expenses..................... 708,504 613,869
Accrued interest.......................................... 386,872 386,868
Security deposits payable................................. 88,511 89,273
Note payable.............................................. 275,892 275,892
----------- -----------
19,339,779 19,245,902
Commitments................................................. -- --
Partners' Deficit........................................... (6,010,782) (5,662,942)
----------- -----------
$13,328,997 $13,582,960
=========== ===========
</TABLE>
See notes to financial statements
F-18
<PAGE> 2330
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue
Rental income............................................. $3,224,453 $3,068,213
Other income.............................................. 156,170 146,372
Less: Vacancies........................................... (152,672) (130,468)
Concessions......................................... (95,388) (100,546)
---------- ----------
Total revenue..................................... 3,132,563 2,983,571
---------- ----------
Operating expenses
Leasing................................................... 197,225 122,082
General and administrative................................ 85,300 103,575
Management fees........................................... 155,150 148,243
Utilities................................................. 260,103 223,383
Repairs and maintenance................................... 228,453 200,464
Janitorial................................................ 64,982 66,724
Painting and decorating................................... 80,068 65,242
Insurance................................................. 62,661 65,484
Taxes..................................................... 518,956 477,552
---------- ----------
Total operating expenses.......................... 1,652,898 1,472,749
---------- ----------
Other (income) expenses
Depreciation.............................................. 585,190 577,484
Amortization.............................................. 53,595 53,595
Interest income........................................... (69,366) (66,018)
Interest expenses -- mortgage............................. 1,160,600 1,160,600
Bond fees................................................. 49,970 50,294
Other expenses............................................ 47,516 14,634
---------- ----------
Total other (income) expenses..................... 1,827,505 1,790,589
---------- ----------
Net Loss.......................................... $ (347,840) $ (279,767)
========== ==========
</TABLE>
See notes to financial statements
F-19
<PAGE> 2331
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C>
Partners' deficit, December 31, 1994........................ $(5,383,175)
Net loss.................................................... (279,767)
-----------
Partners' deficit, December 31, 1995........................ (5,662,942)
Net loss.................................................... (347,840)
-----------
Partners' deficit, December 31, 1996........................ $(6,010,782)
===========
</TABLE>
See notes to financial statements
F-20
<PAGE> 2332
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (347,840) $ (279,767)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation........................................... 585,190 577,484
Amortization........................................... 53,595 53,595
(Increase) decrease in accounts receivable............. 4,047 (3,095)
Increase in interest reserve........................... (119,671) (127,916)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 94,639 (61,377)
Net security deposits paid............................. (12,458) (6,123)
(Increase) decrease in prepaid expenses................ 1,674 (65)
---------- ----------
Net cash provided by operating activities......... 259,176 152,736
---------- ----------
Cash flows from investing activities Investment in real
estate.................................................... (222,071) (194,255)
---------- ----------
Net cash used in investing activities............. (222,071) (194,255)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents..................................... 37,105 (41,519)
Cash and cash equivalents, beginning........................ 106,226 147,745
---------- ----------
Cash and cash equivalents, end.............................. $ 143,331 $ 106,226
========== ==========
Supplemental disclosure of cash flow information
Cash paid during the year for interest.................... $1,160,604 $1,160,600
========== ==========
</TABLE>
See notes to financial statements
F-21
<PAGE> 2333
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Burnsville Apartments Limited Partnership ("the partnership") was formed as
a limited partnership under the laws of the State of Minnesota on May 12, 1983,
for the purpose of developing, constructing and operating a multifamily housing
project. The project consists of 400 units and is operating under the name of
The Woods of Burnsville. The partnership has entered into an agreement with the
City of Burnsville which provides for the rental of at least 20% of the units to
tenants whose income does not exceed 80% of the median area income. This
restriction is necessary in order for the partnership to comply with the
provisions of the Internal Revenue Code governing preservation of the tax exempt
status of the bonds issued by the City of Burnsville.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment in Real Estate
Investment in real estate is carried at cost. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives on the straight-line method. For income tax
purposes, accelerated methods and lives are used.
Amortization
Financing fees are being amortized over the term of the mortgage loan using
the straight-line method.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the partnership and
tenants of the property are operating leases.
Cash Equivalents
For purposes of the statements of cash flows, the partnership considers all
highly liquid investments to be cash equivalents. The carrying amount of
$132,125 approximates fair value because of the short maturity of this
instrument.
NOTE B -- FINANCING
A first mortgage in the amount of $16,580,000 is due August 1, 1999, with
semiannual payments of interest only at 7% per annum until maturity ($580,300 is
being held in a bond reserve fund by the trustee to fund interest payments on
the bonds, if necessary). The City of Burnsville, Minnesota, has issued a 1989
series of tax-exempt bonds, which are secured by an irrevocable letter-of-credit
for $17,218,330 ($16,580,000 to pay principal on the bonds and $638,330 to pay
interest on the bonds or the portion of the bonds representing
F-22
<PAGE> 2334
BURNSVILLE APARTMENTS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accrued interest). The partnership is obligated to reimburse the Lender for any
amount drawn on the letter-of-credit. There was no outstanding balance at
December 31, 1996. The mortgage is secured by the rental property and an
assignment of all project rents and leases.
The partnership has established an interest reserve account to pay the
semiannual interest payments due February and August of each year. At December
31, 1996, the interest reserve balance is $634,141.
A second mortgage in the amount of $550,000 is noninterest bearing and is
due August 1, 1999. This note is secured by the rental property and an
assignment of all project rents and leases and is subordinate to the first
mortgage.
The remaining debt is evidenced by a third mortgage in the amount of
$750,000, which is noninterest bearing and is due August 1, 1999. This note
requires the payment of bonus interest up to $250,000 based on the net proceeds
received in the event of a sale or refinancing of the property. Such interest
will be expensed, if applicable, upon a sale or refinancing. This note is also
secured by the rental property and an assignment of all project rents and leases
and is subordinate to the first and second mortgages.
Bond fees of $49,970 and $50,294 related to the administration of the bonds
were charged to operations during 1996 and 1995, respectively.
NOTE C -- RELATED PARTY TRANSACTION
The project is currently managed by Winthrop Management, an affiliate of
the general partner, which receives an annual fee of 5% of the gross receipts of
the property. Property management fees of $155,150 and $148,243 were charged to
operations during 1996 and 1995, respectively.
NOTE D -- COMMITMENT
The partnership is required to provide additional capital up to $750,000 to
fund future debt service shortfalls. Minneapolis II, the general partner, agreed
to fund up to $750,000 to the partnership for these payments. Advances from
Minneapolis II totaling $275,892 were outstanding as of December 31, 1996 and
1995, respectively.
This loan is noninterest bearing and due on August 1, 1999. This loan is
equal in priority to the second mortgage and is collateralized by the rental
property.
F-23
<PAGE> 2335
APPENDIX A-1
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending June 30, 1998,
which the Partnership's management has indicated to be the most current
available financial statements;
3. Reviewed descriptive information concerning the property owned by
the Partnership (the "Property"), including location, number of units and
unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
June 30, 1998;
A-1
<PAGE> 2336
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed multi-year operating projections for the Property and the
Partnership prepared by the Partnership's management, including revenues
and expenses, net operating income, occupancy, capital improvements, debt
service, residual value, and, in the case of the Partnership, general and
administrative expenses and cash distributions to the General Partners and
the Limited Partners;]
7. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
8. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
9. Performed a site inspection of the Property;
10. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
11. Reviewed information provided by the Company relating to debt
encumbering the Property;
12. [Reviewed any bids received for the Property or publicly disclosed
tender offers for the Units during the past two years;] and
13. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the
A-2
<PAGE> 2337
Partnership's present capitalization or distribution policy; or any other
material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
September , 1998
A-3
<PAGE> 2338
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
NORTHBROOK APARTMENTS, LTD.
IN EXCHANGE FOR YOUR CHOICE OF:
OF OUR TAX-DEFERRAL % PARTNERSHIP PREFERRED UNITS;
OF OUR TAX-DEFERRAL PARTNERSHIP COMMON UNITS; OR
$ IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF % OF
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR
EXCHANGE YOUR UNITS SOLELY FOR OUR OFFER IF MORE UNITS ARE TENDERED TO US, WE
SECURITIES. HOWEVER, YOU WILL RECOGNIZE WILL GENERALLY ACCEPT UNITS ON A PRO RATA
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR BASIS ACCORDING TO THE NUMBER OF UNITS TENDERED
UNITS FOR CASH. BY EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS
OFFER AND TO RENDER AN OPINION AS TO THE IF YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER,
COLORADO TIME, ON , 1998, UNLESS
OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE.
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, the offer consideration may not reflect the
fair market value of your units.
- Your general partner has substantial conflicts of interest with respect
to the offer.
- If we acquire additional units in your partnership, we will increase our
ability to influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties.
- The property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
October , 1998
<PAGE> 2339
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-7
The AIMCO Operating Partnership.............. S-7
The Offer.................................... S-7
Risk Factors................................. S-7
Background and Reasons for the Offer......... S-12
Terms of the Offer........................... S-14
Certain Federal Income Tax Matters........... S-16
Valuation of Units........................... S-16
Fairness of the Offer........................ S-17
Stanger Analysis............................. S-17
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-18
Comparison of Your Units and AIMCO OP
Units...................................... S-18
Conflicts of Interest........................ S-18
Your Partnership............................. S-19
Source and Amount of Funds and Transactional
Expenses................................... S-19
Summary Financial Information of AIMCO
Properties, L.P............................ S-20
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-22
Summary Financial Information of Northbrook
Apartments, Ltd............................ S-25
Comparative Per Unit Data.................... S-25
THE AIMCO OPERATING PARTNERSHIP................ S-26
RISK FACTORS................................... S-26
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-26
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-30
Background of the Offer...................... S-30
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
THE OFFER...................................... S-33
Terms of the Offer; Expiration Date.......... S-33
Acceptance for Payment and Payment for
Units...................................... S-33
Procedure for Tendering Units................ S-34
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-37
Proration.................................... S-37
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-39
Dissenters' Rights........................... S-39
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-42
Accounting Treatment......................... S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-42
General...................................... S-42
Ranking...................................... S-43
Distributions................................ S-43
Allocation................................... S-44
Liquidation Preference....................... S-44
Redemption................................... S-45
Voting Rights................................ S-45
Restrictions on Transfer..................... S-45
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-48
CERTAIN FEDERAL INCOME TAX MATTERS............. S-51
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-51
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-51
Tax Consequences of Exchanging Units Solely
for Cash................................... S-52
Adjusted Tax Basis........................... S-52
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-53
Passive Activity Losses...................... S-53
Foreign Offerees............................. S-54
Certain Tax Consequences to Non-Tendering and
Partially-Tendering Unitholders............ S-54
VALUATION OF UNITS............................. S-55
FAIRNESS OF THE OFFER.......................... S-57
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-57
Fairness to Unitholders who Tender their
Units...................................... S-58
Fairness to Unitholders who do not Tender
their Units................................ S-58
Comparison of Consideration to Alternative
Consideration.............................. S-58
Allocation of Consideration.................. S-59
STANGER ANALYSIS............................... S-60
Experience of Stanger........................ S-60
Summary of Materials Considered.............. S-60
Summary of Reviews........................... S-61
Conclusions.................................. S-62
Assumptions, Limitations and
Qualifications............................. S-62
Compensation and Material Relationships...... S-63
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-64
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-69
CONFLICTS OF INTEREST.......................... S-73
Conflicts of Interest with Respect to the
Offer...................................... S-73
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-73
Competition Among Properties................. S-73
Features Discouraging Potential Takeovers.... S-73
Future Exchange Offers....................... S-73
</TABLE>
i
<PAGE> 2340
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YOUR PARTNERSHIP............................... S-74
General...................................... S-74
Your Partnership and its Property............ S-74
Property Management.......................... S-74
Investment Objectives and Policies; Sale or
Financing of Investments................... S-74
Capital Replacement.......................... S-75
Borrowing Policies........................... S-75
Competition.................................. S-75
Legal Proceedings............................ S-75
Selected Financial Information............... S-75
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-77
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-79
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributions and Transfers of Units......... S-79
Beneficial Ownership of Interests in Your
Partnership................................ S-80
Compensation Paid to the General Partner and
its Affiliates............................. S-80
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-81
LEGAL MATTERS.................................. S-81
EXPERTS........................................ S-81
INDEX TO FINANCIAL STATEMENTS.................. F-1
OPINION OF ROBERT A. STANGER & CO., INC........ A-1
</TABLE>
ii
<PAGE> 2341
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Northbrook Apartments, Ltd. For each unit that you tender, you may choose
to receive of our Tax-Deferral % Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our
Tax-Deferral Partnership Common Units (also referred to as "Common OP
Units"), or $ in cash (subject, in each case to adjustment for any
distributions paid to you during the offer period). If you like, you can
choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 1, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 396,090 apartment units in
2,303 properties located in 49 states, the District of Columbia and Puerto
Rico. As of June 30, 1998, AIMCO had total assets of $3,055 million, total
debt of $1,314 million and stockholders' equity of $1,394 million. On a pro
forma basis, giving effect to our recently completed merger with Insignia
Financial Group, Inc. and related transactions, as of June 30, 1998, AIMCO
had total assets of $3,972 million, total debt of $1,626 million and
stockholders' equity of $1,844 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the managing general partner of your partnership (the
"general partner") and the company that manages the property owned by your
partnership.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE TAX-DEFERRAL % PREFERRED OP UNITS?
A: Tax-Deferral % Preferred OP Units are a class of our Partnership
Preferred Units. Tax-Deferral % Preferred OP Units are not listed on any
national securities exchange nor quoted on the National Association of
Securities Dealers Automated Quotations System (also referred to as the
"NASDAQ System"). There is no active trading market for Tax-Deferral %
Preferred OP Units and none is likely to develop because they are subject
to restrictions on transfer. However, after a one-year holding period, a
holder of Tax-Deferral % Preferred OP Units may redeem his or her
units for shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash, at our option. AIMCO's Class A Common Stock
is, and AIMCO's Class I Preferred Stock is expected to be, listed and
traded on the New York Stock Exchange (also referred to as the "NYSE").
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL %
PREFERRED OP UNITS?
A: There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash.
S-1
<PAGE> 2342
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral %
Preferred OP Units before any distributions are paid to holders of Tax-
Deferral Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Tax-Deferral %
Preferred OP Units rank equal to six other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT ARE TAX-DEFERRAL COMMON OP UNITS?
A: The Tax-Deferral Common OP Units are our Partnership Common Units.
Tax-Deferral Common OP Units are not listed on any national securities
exchange nor quoted on the NASDAQ System. There is no active trading market
for Tax-Deferral Common OP Units and none is likely to develop because they
are subject to restrictions on transfer. However, after a one-year holding
period, a holder of Tax-Deferral Common OP Units may redeem his or her
units for shares of AIMCO's Class A Common Stock (on a one-for-one basis,
subject to adjustment in certain circumstances) or, at our option, an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the New York Stock Exchange under the symbol "AIV." On October 5,
1998, the last reported sale price of AIMCO Class A Common Stock on the New
York Stock Exchange was $ . The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class
A Common Stock for the periods indicated. The table also shows the
distributions per unit declared on the Tax-Deferral Common OP Units for the
same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through October 5,
1998)................................ $ $ $ -- $ --
Third Quarter........................... 41 30 15/16 -- --
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Q: WHAT ARE THE ADVANTAGES TO ME OF EXCHANGING UNITS FOR TAX-DEFERRAL COMMON
OP UNITS?
A: There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock or an equivalent amount of cash.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
S-2
<PAGE> 2343
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis). Historically, the quarterly
distributions paid on the Tax-Deferral Common OP Units have been
equivalent to the dividends paid on AIMCO's Class A Common Stock. We
expect this to continue in the future.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in \the AIMCO stock price and from any
future increase in distributions on the Tax-Deferral Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
Q: WHAT IS THE ADVANTAGE OF TENDERING UNITS FOR CASH?
A: There are two principal advantages of tendering units for cash:
- Immediate liquidity. If you tender your units for cash, you will receive
$ per unit. However, tendering your units for cash may cause you to
recognize taxable gain for Federal income tax purposes.
- Ease of tax reporting. After this year, you will not receive a Schedule
K-1 tax form containing tax information used for preparing your Federal
income tax return. This may simplify the preparation of your tax return.
Q: HOW DO THE DISTRIBUTIONS ON MY UNITS COMPARE WITH THE DISTRIBUTIONS I WILL
RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR
TAX-DEFERRAL COMMON OP UNITS?
A: Your partnership paid distributions of $3,991.94 per unit for the six
months ended June 30, 1998 (equivalent to $4,983.88 on an annual basis). We
will pay fixed quarterly distributions of $ per unit on the
Tax-Deferral % Preferred OP Units before any distributions are paid to
holders of Tax-Deferral Common OP Units. We pay quarterly distributions on
the Tax-Deferral Common OP Units based on our funds from operations for
that quarter. For the six months ended June 30, 1998, we paid distributions
of $0.5625 on each of the Tax-Deferral Common OP Units (equivalent to $2.25
on an annual basis). This is equivalent to distributions of $ per
year on the number of Tax-Deferral % Preferred OP Units or
distributions of $ per year on the number of Tax-Deferral Common
OP Units that you would receive in an exchange for each of your
partnership's units.
Q: WHAT ARE THE DISADVANTAGES AND RISKS I SHOULD CONSIDER?
A: We determined our offer consideration without any arms-length negotiations.
Thus, the offer consideration may not necessarily reflect the value of your
units if they were sold to someone else or if the assets of your
partnership were liquidated and the net proceeds distributed to you and
your partners. If you tender your units for cash, you may have to pay
taxes. If you tender your units in exchange for Tax-Deferral % Preferred
OP Units or Tax-Deferral Common OP Units, the nature of your investment
will change from holding an interest in a single apartment property to
holding an interest in an operating business that owns and manages a large
portfolio of properties, with risks that do not exist for your partnership.
You should review the risk factors in this Prospectus Supplement and in the
accompanying Prospectus.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE OFFER TO ME?
A: You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for
Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units. You
will generally recognize a taxable gain or loss for Federal income tax
purposes on units you sell for cash. The exchange of your units for cash
and OP Units will be treated, for Federal income tax purposes, as a partial
sale of such units for cash, and as a partial tax-free contribution of such
units to our operating partnership.
S-3
<PAGE> 2344
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING YOUR UNITS IN THE OFFER. THIS SUMMARY
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE
SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF
FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL
INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES TO YOU OF THE OFFER.
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of
units without the consent of the general partner. Such consent may be
withheld by the general partner in its sole discretion. The general partner
may withhold its consent if such transfer would result in the termination
of your partnership for tax purposes which will occur if more than 50% or
more of the total interests in your partnership are transferred within a
12-month period. If we acquire a significant percentage of the interest in
your partnership, the general partner may not consent to a transfer for a
12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire additional interests in your partnership, we will
increase our ability to influence voting decisions with respect to your
partnership. In addition, there is a sale or exchange of 50% or more of the
total interest in capital and profits of your partnership within any
12-month period, including sales or exchanges resulting from the offer,
your partnership will terminate for Federal income tax purposes. Any such
termination may, among other things, subject the assets of your partnership
to longer depreciable lives than those currently applicable to the assets
of your partnership. This would generally decrease the annual average
depreciation deductions allocable to you if you do not tender all of your
units (thereby increasing the taxable income allocable to your units each
year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership. Any such
termination may also change (and possibly shorten) your holding period with
respect to your units that you choose to retain.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF
YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX
SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
OFFER.
Q: WHAT ARE MY UNITS WORTH?
A: The general partner of your partnership has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on the NASDAQ
System, and there is no established trading market for your units.
Secondary sales activity for the units has been limited and sporadic. Your
general partner does not monitor or regularly receive or maintain
information regarding the prices at which secondary sale transactions in
the units have been effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your
S-4
<PAGE> 2345
partnership using the direct capitalization method. This method involves
applying a capitalization rate to your partnership's annual net operating
income. We determined an appropriate capitalization rate using our best
judgment, but our valuation is just an estimate. Although the direct
capitalization method is a widely-accepted way of valuing real estate,
there are a number of other methods available to value real estate, each of
which may result in different valuations of the property. The proceeds that
you would receive if you sold your units to someone else or if your
partnership were actually liquidated might be higher or lower than our
offer consideration. An actual liquidation may also result in your paying
taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL % PREFERRED OP UNITS TO
BE OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $100 liquidation preference
of the Tax-Deferral % Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF TAX-DEFERRAL COMMON OP UNITS TO BE
OFFERED IN EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents 100% of
the closing price of the AIMCO Class A Common Stock on the NYSE on a recent
date prior to our commencement of this offer.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner. Stanger is one of the leaders in the field of analyzing and
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Tax-Deferral % Preferred OP Units,
Tax-Deferral Common OP Units, cash or a combination. Third, if you do want
to tender any of your units, you should fill out the Letter of Transmittal
that accompanies these materials and send it to the Information Agent
listed on the back cover of this Prospectus Supplement.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE TAX-DEFERRAL %
PREFERRED OP UNITS, TAX-DEFERRAL COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Tax-Deferral % Preferred OP
Units, Tax-Deferral Common OP Units or cash to which you are entitled.
However, we reserve the right to extend, terminate or amend the offer and,
under certain circumstances, to delay payment for your units.
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Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent as set forth below:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
On the Internet:
www.clc-online.com
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. As of
October 1, 1998, our portfolio of owned or managed properties included 396,090
apartment units in 2,303 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 1, 1998, we:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment properties;
and
- managed 97,716 units in 759 apartment properties for third party owners
and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- of our Tax-Deferral % Preferred OP Units;
- of our Tax-Deferral Common OP Units; or
- $ in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of % of the outstanding units in
response to our offer. If more units are tendered to us, we will generally
accept units on a pro rata basis according to the number of units tendered by
each person. Our offer is not subject to any minimum number of units being
tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S- of this Prospectus Supplement and on page 5 of the
accompanying Prospectus. The following highlights some of the risks associated
with our offer:
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon
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a future liquidation of your partnership. Accordingly, you might receive more
value if you retain your units until your partnership is liquidated. However,
you may prefer to receive the offer consideration now rather than wait for
uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Code.
The particular tax consequences to you of the exchange will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership, and whether the "passive loss" rules apply to your investments.
Because the income tax consequences of an exchange of units will not be the same
for everyone, you should consult your tax advisor before determining whether to
tender your units pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner has no present intention to liquidate or
sell your partnership's property or prepay the current mortgage on the property
within any specified time period, any such action in the future generally will
require you to fully recognize any deferred taxable gain if you exchange your
units for OP Units. See "Federal Income Taxation of the AIMCO Operating
Partnership and Unitholders" in the accompanying Prospectus.
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<PAGE> 2349
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages a single
apartment property to an interest in a partnership that invests in and manages a
large portfolio of properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of the general partner. Such consent may be withheld by the general
partner in its sole discretion. The general partner may withhold its consent if
such transfer would result in the termination of your partnership for tax
purposes which will occur if more than 50% or more of the total interests in
your partnership are transferred within a 12-month period. If we acquire a
significant percentage of the interest in your partnership, the general partner
may not consent to a transfer for a 12-month period following the offer.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
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<PAGE> 2350
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner or the property manager of
your partnership's property may become more difficult or impossible without our
consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,303 properties with
396,090 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. Recently,
Moody's Investors Service ("Moody's") revised its outlook for the ratings of
AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of more difficult general capital market
conditions. Moody's noted that AIMCO's access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to the Class I Preferred Stock proposed to
be issued by AIMCO. At the same time, Moody's confirmed its existing rating on
AIMCO's preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
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WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman, our President and one of our Executive
Vice Presidents, the loss of any of their services could have an adverse effect
on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the Federal laws and interpretations thereof could adversely affect our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain
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pension trusts, registered investment companies and Mr. Considine). Our charter
also prohibits anyone from buying shares if the purchase would result in us
losing our REIT status. If you or anyone else acquires shares in excess of the
ownership limit or in violation of the ownership requirements of the Internal
Revenue Code for REITs, the transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired the general partner of your partnership and the company that
manages the property owned by your partnership. We currently do not own any
limited partnership interest in your partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner:
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Under your partnership's agreement of limited
partnership, a sale of your partnership's assets and the subsequent
liquidation of your partnership could occur only with the consent of
Northbrook Partners, Ltd., the original limited partner. In the absence of
such consent, your only option for liquidation of your investment would be
to sell your units in a private transaction. Any such sale could be at a
very substantial discount from your pro rata share of the fair market value
of your partnership's property and might involve significant expense and
delay.
Continuation of Your Partnership Without the Offer. A second
alternative would be for your partnership to continue its business without
our offer. A number of advantages could result from the continued operation
of your partnership. Given improving rental market conditions, the level of
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distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner expects to
result from the offer. For example, a partner of your partnership would
have no opportunity for liquidity unless he were to sell his units in a
private transaction. Any such sale would likely be at a very substantial
discount from the partner's pro rata share of the fair market value of your
partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for
Tax-Deferral % Preferred OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral % Preferred OP Units and receive, at our
option, shares of AIMCO's Class I Preferred Stock, shares of AIMCO's
Class A Common Stock or cash. AIMCO's Class A Common Stock is, and
AIMCO's Class I Preferred Stock is expected to be, listed and traded on
the New York Stock Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral % Preferred OP
Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $ per unit on the Tax-Deferral % Preferred OP
Units before any distributions are paid to holders of Tax-Deferral Common
OP Units. However, one class of outstanding Partnership Preferred Units
has prior distribution rights and the Tax-Deferral % Preferred OP Units
rank equal to six other outstanding classes of Partnership Preferred
Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for
Tax-Deferral Common OP Units:
- Enhanced Liquidity. After a one-year holding period, you may choose to
redeem your Tax-Deferral Common OP Units and receive, at our option,
shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject
to adjustment in certain circumstances) or an equivalent amount of cash.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the
Tax-Deferral Common OP Units. For the quarter ended June 30, 1998, we
paid distributions of $0.5625 on each of the Tax-Deferral Common OP Units
(equivalent to $2.25 on an annual basis).
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future
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